0001104659-02-002491.txt : 20020515 0001104659-02-002491.hdr.sgml : 20020515 20020515130857 ACCESSION NUMBER: 0001104659-02-002491 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALTRIS SOFTWARE INC CENTRAL INDEX KEY: 0000813747 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 953634089 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15935 FILM NUMBER: 02650148 BUSINESS ADDRESS: STREET 1: 9339 CARROLL PARK DR CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6196253000 MAIL ADDRESS: STREET 1: ALPHAREL INC /CA/ STREET 2: 9339 CARROLL PARK DR CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: ALPHAREL INC /CA/ DATE OF NAME CHANGE: 19920703 10-Q 1 j3872_10q.htm 10-Q FORM 10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

ý	QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2002

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-15935

ALTRIS SOFTWARE INC.
(Exact name of registrant as specified in its charter)

CALIFORNIA		95-3634089
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

9339 CARROLL PARK DRIVE, SAN DIEGO, CA 92121
(Address of principal executive offices and zip code)

(858) 625-3000
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ý NO o

Number of shares of Common Stock outstanding at March 31, 2002: 30,841,590

ALTRIS SOFTWARE, INC.

INDEX

PART I.			FINANCIAL INFORMATION

	Item 1.Consolidated Financial Statements

				Consolidated Balance Sheets

				Consolidated Statements of Operations

				Consolidated Statements of Cash Flows

				Condensed Notes to the Consolidated Financial Statements

	Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


PART II.		OTHER INFORMATION

ALTRIS SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

	March 31, 2002			September 30, 2001
	March 31, 2002			September 30, 2001
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	7,000		$	144,000
Receivables, net	541,000			1,150,000
Other current assets	322,000			412,000
Total current assets	870,000			1,706,000

Property and equipment, net	262,000			313,000
Computer software, net	1,746,000			2,164,000
Other assets	82,000			73,000
Total assets	$	2,960,000		$	4,256,000

LIABILITIES AND SHAREHOLDERS’ DEFICIT

Current liabilities:
Accounts payable	$	1,185,000		$	958,000
Accrued liabilities	1,396,000			1,596,000
Notes payable and accrued interest to shareholder	400,000			—
Deferred revenue	2,016,000			1,620,000
Total current liabilities	4,978,000			4,174,000

Notes payable and accrued interest to shareholder	3,159,000			1,377,000
Total liabilities	8,156,000			5,551,000

Shareholders’ deficit:
Common stock, no par value, 40,000,000 shares authorized; 30,841,590 issued and outstanding	73,868,000			73,838,000
Common stock warrants	718,000			718,000
Accumulated other comprehensive loss	—			(33,000		)
Accumulated deficit	(79,782,000		)	(75,818,000		)
Total shareholders’ deficit	(5,196,000		)	(1,295,000		)

Total liabilities and shareholders’ deficit	$	2,960,000		$	4,256,000

The accompanying condensed notes are an integral part of these consolidated financial statements.

ALTRIS SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended March 31,						For the six months ended March 31,
	2002			2001			2002			2001
Revenues:
Licenses	$	329,000		$	1,487,000		$	647,000		$	2,868,000
Services and other	1,238,000			1,822,000			2,638,000			3,342,000
Total revenues	1,567,000			3,309,000			3,285,000			6,210,000

Cost of revenues:
Licenses	349,000			457,000			609,000			795,000
Services and other	879,000			1,108,000			1,862,000			1,989,000
Total cost of revenues	1,228,000			1,565,000			2,471,000			2,784,000

Gross profit	339,000			1,744,000			814,000			3,426,000

Operating expenses:
Research and development	569,000			453,000			1,193,000			939,000
Marketing and sales	1,087,000			1,032,000			2,338,000			1,896,000
General and administrative	677,000			369,000			1,112,000			711,000
	2,333,000			1,854,000			4,643,000			3,546,000

Loss from operations	(1,994,000		)	(110,000		)	(3,829,000		)	(120,000		)

Interest and other income	2,000			24,000			5,000			38,000
Interest and other expense	(85,000		)	(3,000		)	(140,000		)	(5,000		)
Gain on sale of interest in subsidiary	—			—			—			125,000
Net income (loss)	$	(2,077,000	)	$	(89,000	)	$	(3,964,000	)	$	38,000

Basic net income (loss) per common share	$	(0.07	)	$	(0.00	)	$	(0.13	)	$	0.00

Diluted net income (loss) per common share	$	(0.07	)	$	(0.00	)	$	(0.13	)	$	0.00

Shares used in computing basic net income (loss) per common share	30,842,000			30,841,000			30,842,000			30,743,000

Shares used in computing diluted net income (loss) per common share	30,842,000			30,841,000			30,842,000			31,112,000

The accompanying condensed notes are an integral part of these consolidated financial statements.

ALTRIS SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the six months ended March 31,
	For the six months ended March 31,
	2002			2001
Cash flows from operating activities:
Net income (loss)	$	(3,964,000	)	$	38,000
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	547,000			589,000
Stock options issued	30,000			—
Gain on sale of interest in subsidiary	—			(125,000		)
Changes in assets and liabilities, net of effect of dispositions:
Receivables, net	577,000			(359,000		)
Other assets	540,000			(260,000		)
Accounts payable	135,000			323,000
Accrued liabilities	(518,000		)	67,000
Deferred revenue	409,000			(664,000		)
Net cash used in operating activities	(2,244,000		)	(391,000		)

Cash flows from investing activities:
Purchases of property and equipment	(30,000		)	(29,000		)
Purchases of software	(50,000		)	—
Net cash used in investing activities	(80,000		)	(29,000		)

Cash flows from financing activities:
Proceeds from shareholder loan	2,182,000			—
Proceeds from exercise of stock options	—			3,000
Net cash provided by financing activities	2,182,000			3,000

Effect of exchange rate changes on cash	5,000			12,000

Net decrease in cash and cash equivalents	(137,000		)	(405,000		)
Cash and cash equivalents at beginning of period	144,000			1,808,000

Cash and cash equivalents at end of period	$	7,000		$	1,403,000

The accompanying condensed notes are an integral part of these consolidated financial statements.

ALTRIS SOFTWARE, INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of Altris Software, Inc. and its wholly owned subsidiaries (the “Company”). All significant intercompany balances and transactions have been eliminated. In the first quarter of fiscal 2001, the Company acquired certain assets and liabilities of Spescom Ltd. U.K. (formerly Altris Software Limited) along with Spescom Ltd. U.K.’s document management business. Spescom Ltd. UK is a wholly owned subsidiary of Spescom Ltd., which became the majority shareholder in the Company in April 2000. (See Note 3.)

The information contained in the following Condensed Notes to the Consolidated Financial Statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements and related notes thereto contained in the Company’s Report on Form 10-K for the year ended September 30, 2001. It should be understood that the accounting measurements at an interim date inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results expected for the entire year.

The accompanying consolidated statements of operations and cash flows for the three and six months ended March 31, 2002 and 2001 are unaudited. The consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles applicable to interim periods. In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated financial position, operating results and cash flows for the periods presented.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with a wide-ranging set of standards and interpretations of those standards under accounting principles generally accepted in the United States of America, consisting principally of:

- Statement of Position (SOP) No. 97-2, “Software Revenue Recognition,”

issued by the American Institute of Certified Public Accountants (AICPA)

- AICPA SOP No. 98-9, “Modification of SOP 97-2, Software Revenue

Recognition, With Respect to Certain Transactions,”

- Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial

Statements,” issued by the United States Securities and Exchange

Commission

The Company enters into contractual arrangements with end users of its products that may include software licenses, maintenance services, consulting services, or various combinations thereof, including the sale of such elements separately. For each arrangement, revenues are recognized when both parties have signed an agreement, the fees to be paid by the customer are fixed or determinable, collection of the fees is probable, delivery of the product has occurred and no other significant obligations on the part of the Company remain.

For multiple-element arrangements, each element of the arrangement is analyzed and the Company allocates a portion of the total fee under the arrangement to the elements based on the fair value of the element, regardless of any separate prices stated within the contract for each element. Fair value is generally considered the price a customer would be required to pay if the element were to be sold separately. The Company applies the “residual method” as allowed under SOP 98-9 in accounting for any element of an arrangement that remains undelivered.

License Revenues: Amounts allocated to software license revenues are recognized at the time of shipment of the software when fair value for any undelivered elements is determinable and all the other revenue recognition criteria discussed above have been met.

Consulting Service Revenues: Consulting service revenues are comprised of consulting and implementation services and, to a limited extent, training. Consulting services are generally sold on a time-and-materials or fixed fee basis and can include services ranging from software installation to data conversion to allow the software to operate in customized environments. Services are generally separable from the other elements under the same arrangement since the performance of the services are not essential to the functionality of the other elements of the transaction and are described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services. Revenues for these services as well as training are generally recognized as the services are performed for time and materials contracts. Contract revenues for fixed fee contracts or programs requiring specialized systems are recognized using the percentage-of-completion method of accounting, primarily based on contract labor hours incurred to date compared with total estimated labor hours at completion. Provisions for anticipated contract losses are recognized at the time they become known.

Maintenance Service Revenues: Maintenance service revenues consist primarily of fees for providing nspecified software upgrades on a when-and-if-available basis and technical support over a specified term, which is typically twelve months. Maintenance revenues are typically paid in advance and are recognized on a straight-line basis over the term of the contract.

Revenues on sales made by the Company’s resellers are generally recognized upon shipment of the Company’s software to the reseller, when the reseller has an identified end user and all other revenue recognition criteria noted above are met. Under limited arrangements with certain distributors, all the revenue recognition criteria have been met upon delivery of the product to the distributor and, accordingly, revenues are recognized at that time. The Company does not offer a right of return on its products.

Foreign Currency Translation

The financial statements of the foreign subsidiary were prepared in its local currency and translated into U.S. dollars based on the current exchange rate at the end of the period for the balance sheet and a weighted-average rate for the period on the statement of operations. Accumulated translation adjustments of $0 and $(33,000) are recorded at March 31, 2002 and September 30, 2001, respectively. Accumulated translation adjustments are reflected as accumulated other comprehensive loss in Shareholders’ Deficit and accordingly have no effect on net income. Foreign currency transaction gains and losses are included in net loss.

Note 2 — Statement of Cash Flows

For the six months ended March 31, 2001, the following assets and liabilities, attributable to the acquisition of Spescom UK, have been excluded from the cash flow statement (see Note 3):

Accounts receivable, net	$	721,000
Other assets	26,000
Property and equipment, net	103,000
Accounts payable	(192,000		)
Accrued liabilities	(228,000		)
Deferred revenue	(665,000		)
Net liabilities assumed	$	(235,000	)

The following is additional cash flow information for the six months ended March 31:

	2002		2001
Supplemental cash flow information:
Interest paid	$	4,000	$	3,000

Schedule of noncash financing activities:
Stock Options Granted to Consultant	$	30,000	$	—

Note 3 — Spescom Transaction and Related Parties

In May 1999, the Company completed a transaction with Spescom Ltd. (“Spescom”), whereby Spescom acquired a 60% ownership interest in the Company’s former United Kingdom subsidiary, Altris Software Ltd. (“ASL”). In April 2000, the Company sold its remaining 40% ownership in ASL to Spescom. For the six months ended March 31, 2001 the Company recognized a gain of $125,000, which it had previously deferred relating to potential warranty claims arising from the sale of ASL.

In the first quarter of 2001, the Company acquired certain assets and liabilities of Spescom Ltd. U.K. (formerly ASL) along with Spescom Ltd. U.K.’s document management business. Spescom Ltd. UK is a wholly owned subsidiary of Spescom, which became the majority shareholder in the Company in April 2000. Prior to the acquisition, Spescom Ltd. UK had been the Company’s exclusive distributor of the Company’s eB product suite outside North, Latin and South America. In exchange for the assets and the assumption of certain liabilities of Spescom Ltd. UK, the Company issued 550,000 shares of its common stock to Spescom. The net liabilities assumed of $235,000 were recorded as a charge against common stock.

In November 2000 Spescom purchased $530,000 worth of software from the Company. Under a royalty arrangement, Spescom also resells certain of the Company’s software. For the three and six month periods ended March 31, 2002, the Company recognized royalty revenue of $2,000 and $14,000 compared to $30,000 and $38,000 for the three and six month periods ended March 31, 2001, arising from this arrangement. The Company purchased $46,000 of consulting services from Spescom during the six months ended March 31, 2001.

Spescom and the Company have entered into a license agreement pursuant to which Spescom has licensed to the Company the right to use the name “Spescom” and to use a trademark owned by Spescom related to certain computer software. The Company will not pay any royalties to Spescom in connection with this license. The license is for an indefinite term, but is terminable by either party upon 60 days prior written notice. Under the license agreement, Spescom has agreed to indemnify and hold harmless the Company and its directors, officers, employees and agents against liabilities arising from any claim brought against the Company that alleges that Spescom’s or the Company’s use of the trademark being licensed infringes the rights of any third party, provided that the Company is in material compliance with the provisions of the license agreement. The Company believes that the terms of this license agreement with Spescom are at least as favorable to the Company as it could have obtained in an arms’ length transaction from an unrelated third party.

Related party liabilities consist of the following:

	March 31, 2002		September 30, 2001
	March 31, 2002		September 30, 2001
	(Unaudited)
Current liability:
Notes payable and accrued interest to Spescom Ltd. United Kingdom	$	400,000	—

Loan payable—Spescom Ltd., South Africa	1,261,000		$	1,377,000
Loan payable—Spescom Ltd. United Kingdom	1,898,000		—

	$	3,559,000	$	1,377,000

Spescom Ltd., South Africa advanced $1,377,000 to the Company during the fiscal year ended September 30, 2001. As of March 31, 2002 the balance owed on this loan is $1,261,000. Interest on the outstanding load amount accrues at the rate of 10.0% per annum and is payable at maturity on October 15, 2003. The balances in the table also include accrued interest due.

Spescom Ltd. United Kingdom advanced to the Company $1,898,000, including accrued interest during the six months ending March 31, 2002. This loan also bears interest at an interest rate of 10.0% per annum, payable at maturity, on October 15, 2003.

At March 31, 2002, the Company had a $400,000 note payable to Spescom Ltd. United Kingdom payable on demand and bearing an annual interest rate of 10%. The $400,000 is part of a $1,600,000 commitment for working capital requirements agreed to by Spescom. In April 2002, the Company received an additional $500,000 as part of this loan. The remaining $700,000 of the $1.6 million in funding is anticipated to be received during the quarter ended June 30, 2002. The Company continues to rely upon this financing from Spescom for its operating needs.

The loans are secured by a security interest in favor of both Spescom Ltd. South Africa and Spescom Ltd. United Kingdom in respect of all of the Company's assets as security. The Company believes that the terms of these loans from Spescom are at least as favorable to the Company as it could have obtained in an arms' length transaction from an unrelated third party.

Note 4 — Receivables

Receivables consist of the following:

	March 31, 2002			September 30, 2001
	March 31, 2002			September 30, 2001
	(Unaudited)
Billed receivables	$	629,000		$	1,240,000
Less allowance for doubtful accounts	(88,000		)	(90,000		)
	$	541,000		$	1,150,000

Note 5 — Reconciliation of Net Income (Loss) and Shares Used in Per Share Computations:

Basic net income (loss) per common share is computed as net income (loss) divided by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed as net income (loss) divided by the weighted average number of common shares and potential common shares, using the treasury stock method, outstanding during the period and assumes conversion into common stock at the beginning of each period of all outstanding shares of convertible preferred stock. Computations of basic and diluted earnings (loss) per share do not give effect to individual potential common stock instruments for any period in which their inclusion would be anti-dilutive.

	For the three months ended March 31,						For the six months ended March 31,
	2002			2001			2002			2001
Net income (loss) used in computing basic and diluted net income (loss) per share	$	(2,077,000	)	$	(87,000	)	$	(3,964,000	)	$	38,000

Shares Used:

Weighted average common shares outstanding used in computing basic net income (loss) per common share	30,842,000			30,841,000			30,842,000			30,743,000

Weighted average common shares outstanding used in computing diluted net income (loss) per common share	30,842,000			30,841,000			30,842,000			31,112,000

Based on the above table, the basic and diluted earnings per share is actually $0.0012for the six months ended March 31, 2001. For financial statement presentation purposes we have rounded the basic and diluted earnings per share to $0.00.

Potentially dilutive stock options to purchase up to 137,379 and 373,358 shares of the Company’s common stock, with weighted average prices of $0.53 and $1.11 were outstanding at March 31, 2002 and 2001, respectively. Warrants to purchase 400,000 shares of the Company’s stock at an average exercise price of $1.90 per share were outstanding at both March 31, 2002 and 2001. These options and warrants were not included in the computation of diluted loss per common share for the three month period ended March 31, 2002 and 2001 because their effect was antidulitive. Dilutive options and warrants were not included in the computation of the diluted loss per common share for the six month period ended March 31, 2002 because their effect was antidilutive. Dilutive stock options and warrants totaling 369,000 were included in the calculation of diluted earnings per share for the six month period ended March 31, 2001.

Note 6 — Segment and Geographic Information

The Company has one business segment which consists of the development and sale of a suite of client/server document management software products.

Revenues for the three and six month periods ended March 31, 2002 and 2001 by customer location are as follows:

	For the three months ended March 31,				For the six months ended March 31,
	2002		2001		2002		2001
United States	$	875,000	$	2,077,000	$	1,708,000	$	3,422,000
Europe, primarily United Kingdom	564,000		1,175,000		1,406,000		2,128,000
Other International	128,000		57,000		171,000		660,000
	$	1,567,000	$	3,309,000	$	3,285,000	$	6,210,000

Note 7 - - Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations” (Statement 141) which supersedes APB Opinion No. 16, “Business Combinations” and SFAS No. 38, “Accounting for Preacquisition Contingencies of Purchased Enterprises.” Statement 141 addresses financial accounting and reporting for business combinations and requires that all business combinations within the scope of Statement 141 be accounted for using only the purchase method. Statement 141 is required to be adopted for all business combinations initiated after June 30, 2001. The adoption of Statement 141 has not had a material effect on the financial statements.

Also in July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets” (Statement 142) which supercedes APB Opinion No. 17, “Intangible Assets.” Statement 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. Statement 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment. The provisions of Statement 142 are required to be applied starting with fiscal years beginning after December 15, 2001. Statement 142, which is required to be applied at the beginning of an entity’s fiscal year, is to be applied to all goodwill and other intangible assets recognized in the financial statements at that date. The adoption of Statement 142 has not had a material effect on the financial statements.

During August 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS No. 143”). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to all entities and legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation of a long-lived assets, except for certain obligations of lessees. SFAS No. 143 amends FASB Statement No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies,” and is effective for fiscal years beginning after April 1, 2003. Management believes that the adoption of Statement 143 will not have a material effect on the Company’s financial statements.

During August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”). SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provision of APB Opinion No. 30, “Reporting the Results of Operations -

Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No. 144 is effective for fiscal years beginning after April 1, 2002. The Company is in the process of evaluating the financial statement impact of adoption of SFAS No. 144.

Note 8 — Comprehensive Income

	Three Months Ended March 31,						Six Months Ended March 31,
	2002			2001			2002			2001
Net income (loss)	$	(2,077,000	)	$	(89,000	)	$	(3,964,000	)	$	38,000
Other comprehensive income (loss):
Foreign currency translation gain adjustments	20,000			6,000			33,000			7,000
Other comprehensive income	20,000			6,000			33,000			7,000
Comprehensive income (loss)	$	(2,057,000	)	$	(83,000	)	$	(3,931,000	)	$	45,000

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2002 COMPARED WITH THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2001.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those set forth under “Certain Factors That May Affect Future Results” below and elsewhere in, or incorporated by reference into, this report.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, management is required to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The significant accounting policies which are most critical to aid in fully understanding and evaluating reported financial results include the following:

Revenue Recognition

The Company enters into contractual arrangements with end users that may include licensing of the Company’s software products, product support and maintenance services, consulting services or various combinations thereof, including the sale of such products or services separately. The Company’s accounting policies regarding the recognition of revenue for these contractual arrangements is fully described in Note 1 of Notes to Consolidated Financial Statements.

The Company considers many factors when applying accounting principles generally accepted in the United States of America related to revenue recognition. These factors include, but are not limited to:

- The actual contractual terms, such as payment terms, delivery dates, and

pricing of the various product and service elements of a contract

- Availability of products to be delivered

- Time period over which services are to be performed

- Creditworthiness of the customer

- The complexity of customizations to the Company’s software required by

service contracts

- The sales channel through which the sale is made (direct, VAR,

distributor, etc.)

- Discounts given for each element of a contract

- Any commitments made as to installation or implementation “go live”

dates

Each of the relevant factors is analyzed to determine its impact, individually and collectively with other factors, on the revenue to be recognized for any particular contract with a customer. Management is required to make judgments regarding the significance of each factor in applying the revenue recognition standards, as well as whether or not each factor complies with such standards. Any misjudgment or error by management in its evaluation of the factors and the application of the standards, especially with respect to complex or new types of transactions, could have a material adverse affect on the Company’s future operating results.

Allowance for Doubtful Accounts

The Company sells its products directly to end users, generally requiring a significant up-front payment and remaining terms appropriate for the creditworthiness of the customer. The Company also sells its products to VARs and other software distributors generally under terms appropriate for the creditworthiness of the VAR or distributor. The Company believes no significant concentrations of credit risk existed at March 31, 2002. Receivables from customers are generally unsecured. The Company continuously monitors its customer account balances and actively pursues collections on past due balances. The Company maintains an allowance for doubtful accounts which is comprised of a general reserve based on historical collections performance plus a specific reserve for certain known customer collections issues. If actual bad debts are greater then the reserves calculated based on historical trends and known customer issues, the Company may be required to book additional bad debt expense which could have a material adverse impact on our operating results for the periods in which such additional expense occurs.

Capitalized Software Development Costs

Software development costs incurred subsequent to the determination of technological feasibility and marketability of a software product are capitalized. Amortization of capitalized software development costs commences when the products are available for general release. Amortization is determined on a product by product basis using the greater of a ratio of current product revenues to projected current and future product revenues or an amount calculated using the straight-line method over the estimated economic life of the product, generally three to five years. In addition to in-house software development costs, the Company purchases certain software from third-party software providers and capitalizes such costs in software development costs. The Company continually evaluates the recoverability of its capitalized software development costs and considers any events or changes in circumstances that would indicate that the carrying amount of an asset may not be recoverable. Any material changes in circumstances, such as a large decrease in revenues or the discontinuation of a particular product line could require future write-downs in the Company’s capitalized software development costs and could have a material adverse impact on our operating results for the periods in which such write-downs occur.

RESULTS OF OPERATIONS

Revenues

Revenues for the three and six month periods ended March 31, 2002 were $1,567,000 and $3,285,000 as compared to $3,309,000 and $6,210,000 for the three and six month periods ended March 31, 2001.

For the three months ended March 31, 2002 revenues consisted of $329,000 (21%) in software licenses and $1,238,000 (79%) related to services and other revenue. This compares to software license revenues of $1,487,000 (45%) and services and other revenue of $1,822,000 (55%) for the three months ended March 31, 2001. For the six months ended March 31, 2002 revenues consisted of $647,000 (20%) in software license revenues and $2,638,000 (80%) in services and other revenue. This compares to software license revenues of $2,868,000 (46%) and services and other revenue of $3,342,000 (54%) for the six months ended March 31, 2001. License revenue for the six months ended March 31, 2001 included a license to Spescom of $530,000.

Software license revenues decreased $1,158,000 and $2,221,000 for the three and six month periods ended March 31, 2002 compared to the three and six month periods ended March 31, 2001. The decrease is due to lower sales of the eB product, which management believes is a result of customers deferring capital expenditures due to an economic slowdown in the United States caused by the recent September 11^th terrorist attacks.

Revenues generated from services decreased $584,000 and $704,000 for the three and six month periods ended March 31, 2002 over the three and six month periods ended March 31, 2001. Management attributes this decline to the decline in software sales service fees for implementing the eB product.

A small number of customers has typically accounted for a large percentage of the Company’s annual revenue. One customer accounted for 17% of total revenue for the six months ended March 31, 2002 and no one customer accounted for more than 10% of revenue for the six month period ended March 31, 2001. One consequence of this dependence has been that revenue can fluctuate significantly on a quarterly basis. The Company’s reliance on relatively few customers could have a material adverse effect on the results of its operations on a quarterly basis. Additionally, a significant portion of the Company’s revenues has historically been derived from the sale of systems to new customers.

Cost of Revenues

Gross profit consists of gross profit from licenses and gross profit from services and other. Gross profit as a percentage of revenue was 22% and 25% for the three and six month periods ended March 31, 2002 compared to gross profit percentages of 53% and 55% for the three and six month periods ended March 31, 2001. The decrease in gross profit for the three and six month periods ended March 31, 2002 was due to the amortization of software costs over lower software license revenues.

Cost of license revenues consists of costs associated with reselling third-party software products and amortization of internal software development costs. Gross profit from license revenues as a percentage of license revenues was (6%) and 6% for the three and six month periods ended March 31, 2002 compared to 69% and 72% for the three and six months ended March 31, 2001. The decrease to (6%) from 69% and to 6% from 72% was the result of a decrease in sales of eB software. As sales decline, our fixed costs remain constant and result in a lower gross profit on licenses sold.

Cost of services and other revenues consists primarily of personnel-related costs in providing consulting services, training to customers and support. It also includes costs associated with reselling third-party hardware and maintenance. Gross profit from services and other revenue as a percentage of services and other revenue was 29% for the three and six month periods ended March 31, 2002 compared to 39% and 40% for the three and six month periods ended March 31, 2001. The decrease in the gross profit margin from services and other revenue for the three and six month periods ended March 31, 2002 was due principally to the decline in service revenue for the periods while personnel-related costs remained constant. In response to the lower service revenues, in March of 2002 the Company reduced the number of service personnel and their associated costs in an effort to bring personnel related costs of services more in line with the lower revenues currently being achieved.

The Company’s software and services are sold at a significantly higher margin than third party products which are resold at a lower gross profit percentage in order for the Company to remain competitive in the marketplace for such third party products. Gross profit percentages can fluctuate quarterly based on the revenue mix of Company software, services and third party software or hardware.

Operating Expenses

Research and development expense for the three and six month periods ended March 31, 2002 was $569,000 and $1,193,000 as compared to $453,000 and $939,000 for the three and six month periods ended March 31, 2001. The increases in research and development for the three and six month periods ended March 31, 2002 was primarily due to increases in personnel and associated costs as a result of assigning personnel to

development activities whereas they were previously assigned to software implementation, sales and marketing activities in the prior year. In March of 2002 in response to the decrease in revenues, the Company reduced the number of research and development personnel in an effort to lower future expenditures. The reductions were implemented with a view to retaining the Company’s core technological competencies and maintaining its abilities to continue to enhance its eB product suite. As a result of these changes research and development expense is expected to decline in future quarters.

Marketing and sales expense for the three and six month periods was $1,087,000 and $2,338,000 as compared to $1,032,000 and $1,896,000 for the three and six month periods ended March 31, 2001. Marketing and sales activity for the three month period ended March 31, 2002 remained unchanged, compared to the same period ended March 31, 2001. Towards the end of fiscal year 2001 the Company expanded its sales and marketing capabilities in anticipation of an upturn in the economy. The expansion led to increased expense for additional personnel and associated costs in the first six months of fiscal year 2002 as compared to the same period a year ago. However, with the continued downturn in the economy and the decrease in revenues, in March 2002 the Company reduced its sales and marketing personnel and associated costs along with certain marketing expenditures in an effort to achieve a reduced level of sales and marketing expenditures which will be more in line with revenues in future quarters.

General and administrative expense was $677,000 and $1,112,000 for the three and six month periods ended March 31, 2002 as compared to $369,000 and $711,000 for the three and six month periods ended March 31, 2001. Of the increase in general and administrative expense $277,000 resulted from severance and related personnel costs incurred in connection with the termination of 38 employees throughout the organization. Additionally general and administrative expense in fiscal 2001 was comparatively lower as a result of lowering reserves for a certain customer dispute. As a result of the reduction in administrative personnel in March of 2002, general and administrative expenses are expected to decline slightly in remaining quarters of fiscal 2002.

Interest and other income was $2,000 and $5,000 for the three and six month periods ended March 31, 2002 as compared to $24,000 and $38,000 for the three and six month periods ended March 31, 2001. The decrease is primarily due to a decrease in investments in 2002 as compared to 2001.

Interest and other expense was $85,000 and $140,000 for the three and six month periods ended March 31, 2002 as compared to $3,000 and $5,000 for the three and six month periods ended March 31, 2001. The increase was due to additional interest expense on the Company’s higher debt balances during 2002 as compared to 2001.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2002, the Company’s cash and cash equivalents totaled $7,000 as compared to $1,444,000 at September 30, 2001, and its current ratio was .2 to 1. For the six month period ended March 31, 2002, cash used in operating and investing activities totaled $2,324,000, while cash provided by financing activities totaled $2,182,000.

The Company has received loans from Spescom in the past to meet its obligations. The outstanding balance of its loans from Spescom increased from $1,377,000 on September 30, 2001 to $3,559,000 on March 31, 2002. Such loans are secured by all of the assets of the Company. See “Related Party Transactions” below.

Included in the loan balance of $3,559,000 owing to Spescom at the end of March 2002 is $400,000 Spescom provided in working capital in the form of a demand loan. The $400,000 is part of a $1,600,000 commitment for working capital requirements agreed to by Spescom. In April 2002, the Company received an additional $500,000 as part of this loan. The remaining $700,000 of the $1.6 million in funding is anticipated to be received during the quarter ended June 30, 2002. The funding to date has enabled the Company to restructure its operation and meet its obligations. In addition, our strategic restructuring plan enables the company to reduce our costs to a level that is aimed at achieving a breakeven cash flow by our fiscal year-end, while still maintaining our core competencies. The loan bears an annual interest rate of 10% and is payable on demand. As part of the loan, the Company has granted a security interest in favor of Spescom in respect of all of the Company’s assets.

Although the Company in the past has received funding from Spescom for working capital purposes including the $900,000 of the $1.6 million funding commitment, Spescom is not obligated to provide additional loans. Spescom's ability to provide future funding has been adversely affected over the past months by the general decline in economic conditions and a substantial decline in the value of the South African Rand in relation to other currencies. In addition, if Spescom is otherwise able and willing to provide additional loans on terms acceptable to the Company, the funding of such loans may be delayed or prevented by currency exchange regulations of the Republic of South Africa under which Spescom is required to apply for and obtain the approval of the South African Reserve Bank before providing any funds to the Company. Moreover, the terms on which any additional funding is provided are not specified and may include interest rates, security arrangements or additional equity dilution that are not acceptable to the Company or that could be materially adverse to the Company.

In March 2002, the Company implemented substantial reductions in costs in an effort to achieve a break-even level of cash flow in the near term. Management believes that the additional $1,600,000 loan from Spescom and these cost reductions will enable the Company to achieve a break-even level of cash flow by the end of the fiscal year. Although such reductions have reduced the Company’s research and development, marketing and sales capabilities, management believes that the reduced levels of research and development, marketing and sales costs are consistent with the level of revenues currently being achieved. Moreover, the Company believes such reductions were implemented with a view to maximizing the Company’s ability to continue to maintain and support its eB product suite, while at the same time pursuing opportunities for sales of new eB systems to new customers. There can be no assurance, however, that the Company will receive the remaining $700,000 in funding agreed by Spescom or will be able to continue to obtain sufficient orders or to achieve sufficient cost reductions to enable the Company to reach a cash flow break-even level, which would be necessary to continue operations in the absence of further financing.

Net Operating Loss Tax Carryforwards

As of September 30, 2001, the Company had a net operating loss carryforward (“NOL”) for federal and state income tax purposes of $28,682,000 and $4,665,000, respectively, which expires over the years 2002 through 2021. In addition, the Company generated but has not used research and investment tax credits for federal income tax purposes of approximately $640,000, which will substantially expire in the years 2002 through 2006. Under the Internal Revenue Code of 1986, as amended (the “Code”), the Company generally would be entitled to reduce its future Federal income tax liabilities by carrying unused NOL forward for a period of 15 years to offset future taxable income earned, and by carrying unused tax credits forward for a period of 15 years to offset future income taxes.

As a result of the issuances of shares of capital stock of the Company to Spescom Ltd. in the past, an ownership change occurred in April 2000. The Company’s ability to utilize the consolidated NOL in future years will be limited under the Code due to this ownership change. The annual limitation is approximately $1,159,000.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Foreign Currency

The Company’s geographic markets are primarily in the United States and Europe, with sales in other parts of the world. In the six months ended March 31, 2002, revenue from the United States, Europe and other locations in the world were 52%, 43% and 5%, respectively. This compares to 55%, 34% and 11%, respectively for the same period in 2001. The European currencies have been relatively stable against the U.S. dollar for the past several years. As a result, foreign currency fluctuations have not had a significant impact on the Company’s revenues or results of operations. Changes in foreign currency rates, the condition of local economies, and the general volatility of software markets may result in higher or lower proportion of foreign revenues in the future. Although the Company’s operating and pricing strategies take into account changes in exchange rates over time, there can be no assurance that future fluctuations in the value of foreign currencies will not have a material adverse effect on the Company’s business, operating results and financial condition.

Inflation

The Company believes that inflation has not had a material effect on its operations to date. Although the Company enters into fixed-price contracts, management does not believe that inflation will have a material impact on its operations for the foreseeable future, as the Company takes into account expected inflation in its contract proposals and is generally able to project its costs based on forecasted contract requirements.

RELATED PARTY TRANSACTIONS

Related party liabilities consist of the following:

	March 31, 2002		September 30, 2001
	(Unaudited)
Current liability:
Notes payable and accrued interest to Spescom Ltd. United Kingdom	$	400,000	—

Loan payable—Spescom Ltd., South Africa	1,261,000		$	1,377,000
Loan payable—Spescom Ltd. United Kingdom	1,898,000		—

	$	3,559,000	$	1,377,000

Spescom Ltd., South Africa advanced $1,377,000 to the Company during the fiscal year ended September 30, 2001. As of March 31, 2002 the balance owed on this loan is $1,261,000. Interest on the outstanding loan amount accrues at the rate of 10.0% per annum and is payable at maturity on October 15, 2003. The balances in the table also include accrued interest due.

At March 31, 2002, the Company had a $400,000 note payable to Spescom Ltd. United Kingdom payable on demand and bearing an annual interest rate of 10%. The $400,000 is part of a $1,600,000 commitment for working capital requirements agreed to by Spescom. In April 2002, the Company received an additional $500,000 as part of this loan. The remaining $700,000 of the $1.6 million in funding is anticipated to be received during the quarter ended June 30, 2002. The Company continued to rely upon this financing from Spescom for its operating needs.

PART II. OTHER INFORMATION

Item 1 — Legal Proceedings

The Company is involved from time to time in litigation arising in the normal course of business. Management believes that any liability with respect to such routine litigation, individually or in the aggregate, is not likely to be material to the Company’s consolidated financial position or results of operations.

In September 2001, a customer notified the Company that it wishes to cancel its contract with the Company to purchase software and services from the Company. The Company is currently disputing the terms of the cancellation with the customer. At March 31, 2002, the Company has deferred costs of $125,000 and deferred revenue of $360,000 related to this contract. Management does not believe that the outcome of this matter will have a material adverse effect on the Company’s financial position or results of operations.

Item 4 — Submission of Matters to a Vote of Security Holders

None

Item 6 — Exhibits and Reports on Form 8-K:

10.28 10.0% promissory note due October 15, 2003 in principal amount of $1,235,076 issued by Altris Software, Inc. to Spescom Ltd. South Africa on February 15, 2002

10.29 10.0% promissory note due October 15, 2003 in principal amount of $1,810,383 issued by Altris Software, Inc. to Spescom Ltd. a United Kingdom corporation on February 15, 2002

10.30 Security agreement between Altris Software, Inc. and Spescom Limited, a United Kingdom corporation and Spescom Limited, a South African corporation and collectively with Spescom UK dated February 15, 2002

10.31 10.0% promissory note due upon demand in principal amount of $400,000 issued by Altris Software, Inc. to Spescom Ltd. a United Kingdom Corporation on March 15, 2002

10.32 Security agreement dated March 15, 2002 between Altris Software, Inc., a California corporation and Spescom Ltd., a United Kingdom corporation

10.33 Pledge agreement executed March 15, 2002 by and between Altris Software, Inc., a California corporation, Spescom Ltd., an United Kingdom corporation and Solomon Ward Seidenwurm & Smith, LLP

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALTRIS SOFTWARE, INC.

By:	/s/John W. Low
	John W. Low
	Chief Financial Officer


Dated:		May 15, 2002

EX-10.28 3 j3872_ex10d28.htm EX-10.28 Promissory Note

Exhibit 10.28

PROMISSORY NOTE

February 15, 2002

Altris Software, Inc. a California corporation (“Altris”), having an address for notices at 9339 Carroll Park Drive, San Diego, California 92121, hereby acknowledges that as of December 22, 2001 it had received funds totaling $1,235,076 (the “Initial Funds”) from Spescom Limited, a South Africa corporation (“Spescom”), having an address for notices at P.O box 288, Halfway House 1685 Midrand, South Africa. In consideration of Spescom advancing the Initial Funds to Altris and the advancement of any additional funds(the “New Funds” and collectively with the Initial Funds, the “Loan”) by Spescom to Altris on even date herewith, Altris promises to repay the Loan to Spescom plus any accrued interest in accordance with the terms set forth below:

1. Payments and Interest. The Loan shall accrue interest at the rate of 10% per annum from the date the Loan, or portion thereof, was advanced to Altris by Spescom. All unpaid principal and accrued interest under this Note shall be due and payable on October 15, 2003 (“Due Date”) unless extended by mutual written consent of Altris and Spescom.

2. Manner of Payments. All payments by Altris under the Loan shall be (a) made in lawful money of the United States of America without set-off, deduction or counterclaim of any kind whatsoever, (b) credited first to amount for late charges, if any, second to any accrued interest under the Loan and finally to the principal balance under the Loan, and (c) deemed paid by Altris upon their actual receipt by Spescom. Interest for any period less than one year shall be calculated on the basis of 1/360^th of one year’s interest multiplied by the number of days during such period.

3. Interest on Interest. All interest under the Loan shall, from its Due Date until it is paid, bear interest at the interest rate set forth above.

4. Security Interest. This Note is subject to the terms of a Security Agreement, dated as of February 15, 2002 by and among Altris, Spescom and Spescom Limited, a United Kingdom corporation (the “Security Agreement”) and is subject to all the provisions thereof, and is secured by a continuing security interest in the Collateral (as defined in the Security Agreement). Notwithstanding the foregoing, Spescom shall have full recourse against Altris, and shall not be required to proceed against the Collateral in an Event of Default (as defined below).

5. Late Charge. If any amount of interest and/or principal under the Loan is not received by Spescom within 15 days after its Due Date, then, without any requirement for notice to Altris, Altris shall immediately pay to Spescom as a late charge an additional sum of 5% per annum of such overdue amount from the Due

Date until the date of payment. Such late charge represents a fair and reasonable estimate of the costs that Spescom will incur by reason of any late payment by Altris. Acceptance of such late charge by Spescom shall not constitute a waiver of Altris’ default with respect to such overdue amount, nor prevent Spescom from exercising any of the other rights and remedies available to Spescom under this Note.

6. Acceleration. All unpaid principal and accrued interest under this Note shall, at Spescom's election, be immediately due and payable upon the occurrence of any of the following events, any of which shall constitute a default (“Event of Default”) under this Note.

6.1 If any amount due under this Note is not received by Spescom when due.

6.2 The occurrence of an Event of Default (as defined in the Security Agreement).

7. Commercial Purposes. Altris acknowledges that the Loan is obtained for business or commercial purposes and that the Loan will not be used primarily for personal, family, household or agricultural purposes.

8. Loan Waivers. To the extent permitted by applicable law, Altris waives presentment, demand, protest, notice of demand and dishonor.

9. Prepayment Without Penalty. This Note may be prepaid in whole or in part at any time without penalty.

10. Interest Limitation. It is not intended by any provision of this Note to charge interest at a rate in excess of the maximum rate of interest permitted to be charged to Altris under applicable law on a cumulative basis. If by mistake or error, interest in excess of such maximum rate shall be paid for any period, the excess amount shall, if permitted by applicable law, be retained by Spescom as Collateral (as defined in the Security Agreement) to be held without interest or trust and commingled with other assets of Spescom or, if not permitted to be so held by Spescom, shall be refunded to Altris. Such interest or premium (“Interest Shortage”) shall, if permitted by applicable law, be added to the interest earned or to be earned for prior or subsequent periods during the term of the Loan so that, to the extent permitted by applicable law on a cumulative basis over the life of the Loan, Spescom may collect all of the interest and premium provided for in the Loan, the same to be accomplished in the following manner, or otherwise as permitted by applicable law: (a) if Spescom were permitted by applicable law to charge interest to Altris in such prior periods in excess of the amount of interest and premium actually charged during such prior periods, then the interest due on the Loan for such prior periods shall automatically be increased by the amount of such Interest Shortage, but not in excess of the maximum interest permitted to be

charged to Altris during such prior periods, and excess of the maximum interest permitted to be charged to Altris during such prior periods, and such increased interest for such prior periods shall be immediately due an payable upon such demand; and (b) if Spescom shall have collected all interest permitted by applicable law to charge interest to Altris in such subsequent periods in excess of the amount of interest and premium actually charged during such subsequent periods, the interest due on the Loan for such subsequent periods shall automatically be increased by the amount of such Interest Shortage, but not in excess of the maximum interest permitted to be charged to Altris during such subsequent period, and such increased interest for such subsequent periods shall be due and payable at the end of each such subsequent period upon demand.

11. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California.

12. Further Assurances. Each party to this Note shall execute all instruments and documents and take all actions as may be reasonably required to effectuate this Note.

13. Venue and Jurisdiction. For purposes of venue and jurisdiction, this Note shall be deemed made and to be performed in the City of San Diego, California.

14. Time of Essence. Time and strict and punctual performance are of the essence with respect to each provision of this Note.

15. Attorney’s Fees. In the event any litigation, arbitration, mediation, or other proceeding (“Proceeding”) is initiated by any party(ies) against any other party(ies) to enforce, interpret or otherwise obtain judicial or quasi-judicial relief in connection with this Note, the prevailing party(ies) in such Proceeding shall be entitled to recover from the unsuccessful party(ies) all costs, expenses, actual attorney’s and expert witness fees, relating to or arising out of (a) such Proceeding (whether or not such Proceeding proceeds to judgment), and (b) any post-judgment or post-award proceeding including without limitation one to enforce any judgment or award resulting from any such Proceeding. Any such judgment or award shall contain a specific provision for the recovery of all such subsequently incurred costs, expenses, actual attorney’s and expert witness fees.

16. Modification. This Note may be modified only by a contract in writing executed by the party(ies) to this Note against whom enforcement of such modification is sought.

17. Headings. The headings of the paragraphs of this Note have been included only for convenience, and shall not be deemed in any manner to modify or limit any of the provisions of this Note, or be used in any manner in the interpretation of this Note.

18. Prior Understandings. This Note and the Security Agreement contain the entire agreement between the parties to this Note with respect to the subject matter of this Note, are intended as a final expression of such parties’ agreement with respect to such terms as are included in this Note, are intended as complete and exclusive statements of the terms of this Note, and supersedes all negotiations, stipulations, understandings, agreements, representations and warranties, if any, with respect to such subject matter, which precede or accompany the execution of this Note.

19. Partial Invalidity. Each provision of this Note shall be valid and enforceable to the fullest extent permitted by law. If any provision of this Note or the application of such provision to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Note, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected by such invalidity or unenforceability, unless such provision or such application of such provision is essential to this Note.

20. Notices. All notices or other communications required or permitted to be given to a party to this Note shall be in writing an shall be personally delivered, sent by certified mail, postage prepaid, return receipt requested, or sent by an overnight express courier service that provides written confirmation of delivery, to such party at its address as set forth above in the introductory paragraph of this Note. Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that if it sent by mail in accordance with this paragraph, then it shall be deemed given, delivered and received three days after the date such notice or other communication is deposited with the United States Postal Service in accordance with this paragraph. Any party to this Note may give a notice of a change of its address to the other party to this Note.

21. Waiver. Any waiver of a default under the this Note must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Note. No delay or omission in the exercise of any right or remedy shall impair such right or remedy or be construed as a waiver. A consent to or approval of any act shall not be deemed to waive or render unnecessary consent to or approval of any act shall not be deemed to waive or render unnecessary consent to or approval of any other or subsequent act.

22. Drafting Ambiguities. Each party to this Note has reviewed and revised this Note. Each party to this Note has had the opportunity to have such party’s legal counsel review and revise this Note. Altris acknowledges that this Note has been prepared by Solomon Ward Seidenwurm & Smith, LLP (“SWSS”) which represents only Spescom with respect to this Note and all related matters, that it is not being represented by SWSS in relation to this Note and related matters and that it has been advised to retain its own legal counsel. The rule of construction that ambiguities are to be resolved against the drafting party or in favor of the

party receiving a particular benefit under an agreement may not be employed in the interpretation of this Note or of any amendments to this Note.

ALTRIS:

ALTRIS SOFTWARE, IN.,
a California corporation


By:	/s/John W. Low
		John W. Low
		Chief Financial Officer

EX-10.29 4 j3872_ex10d29.htm EX-10.29 Promissory Note

Exhibit 10.29

PROMISSORY NOTE

February 15, 2002

Altris Software, Inc. a California corporation (“Altris”), having an address for notices at 9339 Carroll Park Drive, San Diego, California 92121, hereby acknowledges that as of December 22, 2001 it received funds totaling $1,810,383 (the “Loan”) from Spescom Limited, a United Kingdom corporation (“Spescom UK”), having an address for notices at 53-55 Uxbridge Road, Ealing, London, England W5 5SA. In consideration of Spescom UK advancing the Loan to Altris, Altris promises to repay the Loan to Spescom UK plus any accrued interest in accordance with the terms set forth below:

1. Payments and Interest. The Loan shall accrue interest at the rate of 10% per annum from the date the Loan, or portion thereof, was advanced to Altris by Spescom UK. All unpaid principal and accrued interest under this Note shall be due and payable on October 15, 2003 (“Due Date”) unless extended by mutual written consent of Altris and Spescom UK.

2. Manner of Payments. All payments by Altris under the Loan shall be (a) made in lawful money of the United States of America without set-off, deduction or counterclaim of any kind whatsoever, (b) credited first to amount for late charges, if any, second to any accrued interest under the Loan and finally to the principal balance under the Loan, and (c) deemed paid by Altris upon their actual receipt by Spescom UK. Interest for any period less than one year shall be calculated on the basis of 1/360^th of one year’s interest multiplied by the number of days during such period.

3. Interest on Interest. All interest under the Loan shall, from its Due Date until it is paid, bear interest at the interest rate set forth above.

4. Security Interest. This Note is subject to the terms of a Security Agreement, dated as of February 15, 2002 by and among Altris, Spescom Limited, a South African corporation and Spescom UK (the “Security Agreement”) and is subject to all the provisions thereof, and is secured by a continuing security interest in the Collateral (as defined in the Security Agreement). Notwithstanding the foregoing, Spescom UK shall have full recourse against Altris, and shall not be required to proceed against the Collateral in an Event of Default (as defined below).

5. Late Charge. If any amount of interest and/or principal under the Loan is not received by Spescom UK within 15 days after its Due Date, then, without any requirement for notice to Altris, Altris shall immediately pay to Spescom UK as a late charge an additional sum of 5% per annum of such overdue amount from the Due Date until the date of payment. Such late charge represents a fair and reasonable estimate of the costs that Spescom UK will incur by reason of any late

payment by Altris. Acceptance of such late charge by Spescom UK shall not constitute a waiver of Altris’ default with respect to such overdue amount, nor prevent Spescom UK from exercising any of the other rights and remedies available to Spescom UK under this Note.

6. Acceleration. All unpaid principal and accrued interest under this Note shall, at Spescom UK’s election, be immediately due and payable upon the occurrence of any of the following events, any of which shall constitute a default (“Event of Default”) under this Note.

6.1 If any amount due under this Note is not received by Spescom UK when due.

6.2 The occurrence of an Event of Default (as defined in the Security Agreement).

8. Loan Waivers. To the extent permitted by applicable law, Altris waives presentment, demand, protest, notice of demand and dishonor.

9. Prepayment Without Penalty. This Note may be prepaid in whole or in part at any time without penalty.

10. Interest Limitation. It is not intended by any provision of this Note to charge interest at a rate in excess of the maximum rate of interest permitted to be charged to Altris under applicable law on a cumulative basis. If by mistake or error, interest in excess of such maximum rate shall be paid for any period, the excess amount shall, if permitted by applicable law, be retained by Spescom UK as Collateral (as defined in the Security Agreement) to be held without interest or trust and commingled with other assets of Spescom UK or, if not permitted to be so held by Spescom UK, shall be refunded to Altris. Such interest or premium (“Interest Shortage”) shall, if permitted by applicable law, be added to the interest earned or to be earned for prior or subsequent periods during the term of the Loan so that, to the extent permitted by applicable law on a cumulative basis over the life of the Loan, Spescom UK may collect all of the interest and premium provided for in the Loan, the same to be accomplished in the following manner, or otherwise as permitted by applicable law: (a) if Spescom UK were permitted by applicable law to charge interest to Altris in such prior periods in excess of the amount of interest and premium actually charged during such prior periods, then the interest due on the Loan for such prior periods shall automatically be increased by the amount of such Interest Shortage, but not in excess of the maximum interest permitted to be charged to Altris during such

prior periods, and excess of the maximum interest permitted to be charged to Altris during such prior periods, and such increased interest for such prior periods shall be immediately due an payable upon such demand; and (b) if Spescom UK shall have collected all interest permitted by applicable law to charge interest to Altris in such subsequent periods in excess of the amount of interest and premium actually charged during such subsequent periods, the interest due on the Loan for such subsequent periods shall automatically be increased by the amount of such Interest Shortage, but not in excess of the maximum interest permitted to be charged to Altris during such subsequent period, and such increased interest for such subsequent periods shall be due and payable at the end of each such subsequent period upon demand.

11. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California.

12. Further Assurances. Each party to this Note shall execute all instruments and documents and take all actions as may be reasonably required to effectuate this Note.

13. Venue and Jurisdiction. For purposes of venue and jurisdiction, this Note shall be deemed made and to be performed in the City of San Diego, California.

14. Time of Essence. Time and strict and punctual performance are of the essence with respect to each provision of this Note.

16. Modification. This Note may be modified only by a contract in writing executed by the party(ies) to this Note against whom enforcement of such modification is sought.

22. Drafting Ambiguities. Each party to this Note has reviewed and revised this Note. Each party to this Note has had the opportunity to have such party’s legal counsel review and revise this Note. Altris acknowledges that this Note has been prepared by Solomon Ward Seidenwurm & Smith, LLP (“SWSS”) which represents only Spescom UK with respect to this Note and all related matters, that it is not being represented by SWSS in relation to this Note and related matters and that it has been advised to retain its own legal counsel. The rule of construction that ambiguities are to be resolved against the drafting party or in

favor of the party receiving a particular benefit under an agreement may not be employed in the interpretation of this Note or of any amendments to this Note.

ALTRIS:

ALTRIS SOFTWARE, IN.,
a California corporation


By:	/s/John W. Low
		John W. Low
		Chief Financial Officer

EX-10.30 5 j3872_ex10d30.htm EX-10.30 Security Agreement

Exhibit 10.30

SECURITY AGREEMENT

This Security Agreement (“Agreement”) is executed as of February 15, 2002 between Altris Software, Inc., a California corporation (“Debtor”) and Spescom Limited, a United Kingdom corporation (“Spescom UK”) and Spescom Limited, a South African corporation (“Spescom SA” and collectively with Spescom UK, the “Secured Parties”), who agree as follows:

1. Definitions. For purposes of this Agreement, the following definitions shall apply:

1.1. “Accounts” shall mean all “accounts” as defined in the UCC now owned or hereafter acquired by Debtor, including without limitation (a) all accounts receivable, contract rights, notes, drafts and other obligations or indebtedness owing to Debtor and arising from whatever source; (b) all present and future monies, securities, credit balances, deposits, deposit accounts and other property of Debtor now or hereafter held or received by or in transit to the Secured Parties or their affiliates or at any other depository or other institution from or for the account of Debtor, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lien holder or secured party, (iii) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including returned, repossessed and reclaimed goods, and (iv) deposits by and property of account debtors or other persons securing the obligations of account debtors; (c) all of the rights of Debtor in, to and under all purchase orders for goods, services or other property; (d) all monies due to or to become due to Debtor under all contracts for the sale, lease or exchange of goods or other property and/or the performance of services by it (whether or not yet earned by performance on the part of Debtor) and (e) all of the rights of Debtor to any goods, services or other property represented by any of the foregoing, in each case whether now in existence or hereafter arising or acquired including, without limitation, the right to receive the proceeds of said purchase orders and contracts and all collateral security and guarantees of any kind given by any person with respect to any of the foregoing.

1.2. “Collateral” has the meaning set forth in the Paragraph in this Agreement entitled “Security Interests”

1.3. “Default” shall mean any Event of Default and any event which with the passing of time or the giving of notice, or both, would, unless cured or waived, constitute an Event of Default.

1.4. “Documents” shall mean all “documents” as defined in the UCC or other receipts covering, evidencing or representing goods, now owned or hereafter acquired by Debtor.

1.5. “Equipment” shall mean all “equipment” as defined in the UCC (excluding motor vehicles, and railway rolling stock), now or hereafter used or acquired for use in the business or otherwise of Debtor (together with all accessions thereto and all

substitutions and replacements thereof and parts therefor), whether or not the same shall be deemed affixed to real property, and all rights under or arising out of present or future contracts relating to the acquisition or use of the above.

1.6. "Event of Default” shall mean any default by Debtor (a) in the full and punctual payment of any amounts owing with respect to the Secured Obligations which default continues for a period of not less than 10 days, or (b) in the full and punctual performance of its obligations (other than those specified in clause (a) above) under this Agreement or the Loan that has continued unremedied for a period of 30 days after notice thereof by any Secured Party to Debtor.

1.7. "General Intangibles” shall mean all “general intangibles” as defined in the UCC now owned or hereafter acquired by Debtor, including without limitation (a) all obligations or indebtedness owing to Debtor (other than Accounts) from whatever source arising, (b) all registered and unregistered (i) patent licenses, (ii) patents, (iii) trademark licenses, (iv) trademarks, (v) rights in intellectual property, (vi) trade names, (vii) service marks, (viii) trade secrets, (ix) copyrights, (x) permits, (xi) licenses, and (xii) applications for the foregoing, (c) goodwill, processes, drawings, blueprints and customer lists, (d) all rights or claims in respect of refunds for taxes paid, and (e) all rights in respect of any pension plan or similar arrangement maintained for employees of Debtor or any of its subsidiaries.

1.8. "Instruments” shall mean (a) all “instruments”, “chattel paper” or “letters of credit”, each as defined in the UCC, evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including without limitation promissory notes, drafts, bills of exchange and trade acceptances, and (b) notes or other obligations or indebtedness owing to a Debtor (including without limitation obligations of Debtor to any other Debtor) from whatever source arising, in each case now owned or hereafter acquired by Debtor.

1.9. "Inventory” shall mean all “inventory” as defined in the UCC, now owned or hereafter acquired by Debtor, wherever located, including without limitation all raw materials and other materials and supplies, work–in–process and finished goods and any products made or processed therefrom and all substances, if any, commingled therewith or added thereto.

1.10. "Lien” shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, including the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement.

1.11. ”Loan” shall mean collectively, all loans made by the Secured Parties to the Debtor.

1.12. “Note” shall mean, collectively, the Promissory Note dated evenly herewith executed by Debtor in favor of the Secured Parties (as the same may be amended from time to time), and all other promissory notes executed by Debtor in favor of either Secured Party.

1.13. “Proceeds” shall mean all products and proceeds of, and all other profits, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, any item or portion of the Collateral, including without limitation all claims of Debtor against third parties for loss of, damage to, destruction of, or for proceeds payable under, or unearned premiums with respect to, policies of insurance in respect of, any Collateral and any condemnation or requisition payments with respect to any Collateral, in each case whether now existing or hereafter arising.

1.14. “Security Interests” shall mean the security interests securing the Secured Obligations, including without limitation the Security Interests granted pursuant to this Agreement.

1.15. “Secured Obligations” shall mean the Note, all obligations, liabilities and indebtedness pursuant to the Loan or future loans made by either Secured Party to Debtor, and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Debtor to the Secured Parties and/or their affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under this Agreement or the Note, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or the Note or after the commencement of any case with respect to Debtor under the United States Bankruptcy Code or any similar statute (including the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by the Secured Parties.

1.16. “Site” shall mean the Debtor’s principal place of business located at the address set forth in the Introductory Paragraph of this Agreement.

1.17. “Subsidiary” shall mean, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other person performing similar functions are at the time directly or indirectly owned by such Person.

1.18. “UCC” shall mean the Uniform Commercial Code as in effect on the date hereof in the State of California; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non–perfection of the Security Interest in any item or portion of the Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of California, then “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non–perfection.

2. Representations and Warranties. Except as set forth in writing to the Secured Parties, Debtor represents and warrants to the Secured Parties as follows (which shall survive the execution and delivery of this Agreement):

2.1. Debtor has good and marketable title to all of the Collateral owned by it, free and clear of any Liens other than the Security Interests [and “Permitted Liens”].

2.2. Debtor has not performed any acts which might prevent either Secured Party from enforcing any of the terms and conditions of this Agreement or which would limit either Secured Party in any such enforcement. Other than financing statements or other similar or equivalent documents or instrument with respect to the Security Interests, as of the date hereof and thereafter no financing statement, mortgage, security agreement or other similar or equivalent document or instrument covering all or any part of the Collateral is or will be on file or of record in any government office in any jurisdiction in which such filing or recording would be effective to perfect a Lien on such Collateral. No Collateral is in the possession of any person or entity whatsoever (other than Debtor) which has taken action to assert any claim thereto or security interest therein, except that the Secured Parties or their designee may have possession of Collateral as contemplated hereby.

2.3. The Security Interests constitute valid security interests under the UCC securing the Secured Obligations.

2.4. This Agreement has been duly authorized, executed and delivered by Debtor and constitutes a valid and binding agreement of Debtor. The execution, delivery and performance by Debtor of this Agreement, each filing, statement, supplementary assignment, pledge agreement or other document related to this Agreement to which Debtor is a party do not and will not contravene, or constitute (with or without the giving of notice or lapse of time or both) a default under, any provision of applicable law or regulation or of the charter or by–laws of Debtor or of any material agreement, judgment, injunction, order, decree or other instrument binding upon it or result in the creation of any Lien (other than the Security Interests) on any asset of Debtor or any of its Subsidiaries.

2.5. Debtor has filed, or caused to be filed, in a timely manner all material tax returns, reports and declarations which are required to be filed by it. All information in such tax returns, reports and declarations is complete and accurate in all material respects. Debtor has paid or caused to be paid all material taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Debtor and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed.

2.6. There is no present investigation by any governmental agency pending, or to the best of Debtor’s knowledge threatened, against or affecting Debtor, its assets or business and there is no action, suit, proceeding or claim by any person or entity pending, or to the best of Debtor’s knowledge threatened, against Debtor or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against Debtor would result in any material adverse change in the assets, business or prospects of Debtor or would impair the ability of Debtor to perform its obligations hereunder or under the Note or the Loan or of the Secured Parties to enforce any Secured Obligations or realize upon any Collateral.

Debtor is in compliance in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders of any foreign, Federal, State or local governmental authority.

2.8. All representations and warranties contained in this Agreement or any of the agreements concerning the Note or the Loan shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to the Secured Parties on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by the Secured Parties regardless of any investigation made or information possessed by the Secured Parties. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Debtor shall now or hereafter give, or cause to be given, to the Secured Parties.

3. Security Interests. In order to secure the full and punctual payment and performance of the Secured Obligations in accordance with the terms thereof, Debtor hereby grants to the Secured Parties a continuing security interest in and to all of the following property of Debtor, whether now owned or existing or hereafter acquired or arising and regardless of where located (collectively, “Collateral”):

3.1. Accounts;

3.2. Documents;

3.3. Equipment;

3.4. General Intangibles;

3.6. Instruments;

3.7. Inventory;

3.8. All other personal property and assets of Debtor;

3.9. All books and records (including, without limitation, customer lists, supplier lists, credit files, computer programs, printouts and other computer materials and records) of such Debtor pertaining to any of the Collateral; and

3.10. All Proceeds of any of the Collateral described in the preceding clauses of this Paragraph, in any form, including without limitation insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing.

4. Further Assurances; Covenants.

4.1. Debtor shall not change the location of (a) its chief executive office or chief place of business or (b) the locations where it keeps or holds any Collateral, or any records relating to such Collateral, from the Site unless it shall have given the Secured Parties at least 45 days’ prior written notice. Debtor shall not in any event change the location of any Collateral if such change would cause the Security Interests in such Collateral to lapse or cease to be perfected.

4.2. Debtor shall maintain Inventory only at (a) the Site, (b) at a location in the United States of which the Secured Parties have received at least 45 days’ prior written notice, or (c) in transit to a location specified in the preceding clauses.

4.3. Debtor shall not change its name, identity, any tradename used by it or its corporate structure in any manner unless it shall have given the Secured Parties at least 45 days’ prior written notice.

4.4. Debtor shall cause each Secured Party to be named as an insured party and loss payee on each insurance policy covering risks relating to any of its Collateral. Such insurance shall be maintained against such risks as are insured against by companies of established repute in the same or similar lines of business as Debtor, in amounts, under policies, and with insurers reasonably acceptable to the Secured Parties. Debtor will deliver to either Secured Party, upon request of either Secured Party, the insurance policies for such insurance. Each such insurance policy shall include effective waivers by the insurer of all claims for insurance premiums against the Secured Parties, shall provide that, for so long as any Event of Default shall have occurred and be continuing and the insurer shall have received notice thereof from the Secured Parties, all insurance proceeds shall be adjusted with and payable to the Secured Parties and shall provide that no cancellation or termination thereof shall be effective until at least 30 days after receipt by the Secured Parties of written notice thereof.

4.5. Debtor will, promptly upon request, provide to either Secured Party all information and evidence it may reasonably request concerning the Collateral to enable such Secured Party to enforce the provisions of this Agreement.

4.6. At the request of either Secured Party, Debtor will join with such Secured Party in executing one or more (1) Financing Statements, (2) Copyright Registration Applications, and/or (3) Notices of Assignment of Copyright pursuant to any applicable law, in form satisfactory to the Secured Parties.

4.7 The Debtor shall not, without the prior written approval of the Secured Parties, , sell, encumber or otherwise transfer any Collateral, or agree or attempt to do so, other than licenses to customers and others in the ordinary course of business, sales of Debtor’s products in the ordinary course of business and sales of obsolete or excess assets in the ordinary course of business..

4.8

(a) Debtor shall notify the Secured Parties promptly of: (i) any material delay in Debtor’s performance of any of its obligations to any account debtor or the assertion of any claims, offsets, defenses or counterclaims by any account debtor, or any disputes with account debtors, or any settlement, adjustment or compromise thereof, (ii) all material adverse information relating to the financial condition of any account debtor and (iii) any event or circumstance which, to Debtor’s knowledge would cause any then existing Accounts to no longer be collected pursuant to their original terms. No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor without the Secured Parties’ consent, except in the ordinary course of Debtor’s business in accordance with practices and policies previously disclosed in writing to Debtor. So long as

no Event of Default exists or has occurred and is continuing, Debtor shall settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor. At any time that an Event of Default exists or has occurred and is continuing, the Secured Parties shall, at their option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors or grant any credits, discounts or allowances.

(b) Either Secured Party shall have the right at any time or times, in such Secured Party’s name or in the name of a nominee of such Secured Party, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise.

(c) Either Secured Party may, at any time or times that an Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors that the Accounts have been assigned to the Secured Parties and that the Secured Parties has a security interest therein and the Secured Parties may direct any or all accounts debtors to make payment of Accounts directly to the Secured Parties, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Accounts or such other obligations, but without any duty to do so, and the Secured Parties shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action the Secured Parties may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at either the Secured Party’s request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to the Secured Parties and are payable directly and only to the Secured Parties and Debtor shall deliver to the Secured Parties such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as the Secured Parties may require.

4.9 With respect to the Equipment:

(a) upon either Secured Party’s request, Debtor shall, at its expense, at any time or times as such Secured Party may request on or after an Event of Default, deliver or cause to be delivered to the Secured Parties written reports or appraisals as to the Equipment in form, scope and methodology acceptable to the Secured Parties and by an appraiser acceptable to the Secured Parties;

(b) Debtor shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted);

(c) Debtor shall use the Equipment with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all material applicable laws;

(d) the Equipment is and shall be used in Debtor’s business and not for personal, family, household or farming use;

(e) the Equipment is now and shall remain personal property and Debtor shall not permit any of the Equipment to be or become a part of or affixed to real property; and

(f) Debtor assumes all responsibility and liability arising from the use of the Equipment unless in the Secured Parties’ possession.

4.10 With respect to the Inventory:

(a) upon either Secured Party’s request, Debtor shall, at its expense, no more than once in any twelve (12) month period, but at any time or times as either Secured Party may request on or after an Event of Default, deliver or cause to be delivered to the Secured Parties written reports or appraisals as to the Inventory in form, scope and methodology acceptable to the Secured Parties and by an appraiser acceptable to the Secured Parties, addressed to the Secured Parties, upon which the Secured Parties are expressly permitted to rely;

(b) Debtor shall produce, use, store and maintain the Inventory with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto);

(c) Debtor assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; and

(d) Debtor shall keep the Inventory in good and marketable condition.

4.11 Debtor shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Debtor and with respect to which adequate reserves have been set aside on its books. Debtor shall be liable for any tax or penalties (other than income taxes, franchise taxes and any penalties related thereto) imposed on the Secured Parties as a result of the financing arrangements provided for herein and Debtor agrees to indemnify and hold the Secured Parties harmless with respect to the foregoing, and to repay to the Secured Parties on demand the amount thereof, and until paid by Debtor such amount shall be added and deemed part of the Loan. The foregoing indemnity shall survive the payment of the Secured Obligations and the termination or non-renewal of this Agreement.

4.12. Except in the ordinary course of business, other than the Secured Obligations, Debtor shall not incur, create, assume, become liable in any manner with respect to, or permit to exist, any obligations or indebtedness.

5. General Authority. Debtor hereby irrevocably appoints the Secured Parties as its true and lawful attorneys, with full power of substitution, in the name of Debtor, the Secured Parties or otherwise, for the sole use and benefit of the Secured Parties, but at such Debtor’s expense, to the extent permitted by law to exercise, at any time and from time to time while an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral owned by Debtor: (a) to settle, compromise,

compound, prosecute or defend any action or proceeding with respect to the Collateral, (b) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Secured Parties were the absolute owner of the Collateral; provided, that the Secured Parties shall give Debtor not less than 10 days’ prior written notice of the time and place of any sale or other intended disposition of any of the Collateral, except any Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. Debtor agrees that such notice constitutes “reasonable notification” within the meaning of Section 9-504(3) of the UCC.

6. Remedies Upon Event of Default.

6.1. If any Event of Default has occurred and is continuing, either Secured Party may exercise all other rights of a secured party under the UCC (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Secured Parties may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, sell the Collateral or any part thereof at public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Secured Parties may deem satisfactory. Either Secured Party may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale) and thereafter hold the same, absolutely, free from any right or claim of whatsoever kind. Debtor agrees to execute and deliver such documents and take such other action as either Secured Party deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale, the Secured Parties shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold to it absolutely, free from any claim or right of whatsoever kind, including any equity or right of redemption of Debtor which may be waived and Debtor, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice of sale shall, (1) in case of a public sale, state the time and place fixed for such sale, and (2) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Secured Parties may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Secured Parties may determine. The Secured Parties shall not be obligated to make any such sale pursuant to any such notice. The Secured Parties may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Secured Parties until the selling price is paid by the purchaser thereof, but the Secured Parties shall not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may again be sold upon like notice. The Secured Parties, instead of exercising the power of sale herein conferred upon them, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.

6.2. For the purpose of enforcing any and all rights and remedies under this Agreement, if any Event of Default has occurred and is continuing, then either Secured Party may (a) require Debtor to, and Debtor agrees that it will, at its own expense, forthwith assemble all or any part of the Collateral as directed by such Secured Party and make it available at a place designated by such Secured Party which is, in its opinion, reasonably convenient to such Secured Party and Debtor, whether at the premises of Debtor or otherwise, (b) to the extent permitted by applicable law, enter, with or without process of law and without breach of the peace, any premise where any of the Collateral is or may be located, and without charge or liability to it seize and remove such Collateral from such premises, (c) have access to and use any of Debtor’s books and records relating to the Collateral and (d) prior to the disposition of the Collateral, process, repair or recondition it or otherwise prepare it for disposition in any manner and to the extent such Secured Party deems appropriate and, in connection with such preparation and disposition, use without charge any trademark, trade name, copyright, patent or technical process used by Debtor.

6.3. Any laboratory which has possession of any of the Collateral is hereby constituted and appointed by Debtor as pledgeholder for the Secured Parties and the Secured Parties may authorize each such pledgeholder to sell all or any portion of the Collateral upon the order and direction of the Secured Parties, and Debtor hereby waives any and all claims for damages, or otherwise, for any action taken by such pledgeholder.

7. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral shall be applied by the Secured Parties in the following order of priorities:

7.1. First, to payment of the expenses of such sale or other realization, including, on a pari passu basis, reasonable compensation to agents and counsel for each Secured Party and all expenses, liabilities and advances incurred or made by each Secured Party in connection therewith, and any other unreimbursed expenses for which either Secured Party is to be reimbursed under any other agreement or instrument entered into in connection with the Loan or this Agreement and unpaid fees owing to either Secured Party.

7.2. Next, to the payment of the Secured Obligations, on a pari passu basis, in accordance with the provisions of the Loan, until all such amounts have been paid in full.

7.3. Finally, to Debtor or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds.

The Secured Parties may make distributions hereunder in cash or in kind or in any combination thereof.

8. Termination of Security Interest; Release of Collateral. Upon the repayment in full of all Secured Obligations, the Security Interests shall terminate and all rights to the Collateral shall revert to Debtor. At any time and from time to time prior to such termination of the Security Interests, the Secured Parties may release any of the Collateral or release Debtor of its obligations hereunder with the prior written consent of each Secured Party.

9. Governing Law. This Agreement is governed by and construed in accordance with the laws of the State of California, irrespective of California’s choice-of-law principles.

10. Further Assurances. Each party to this Agreement shall execute and deliver all instruments and documents and take all actions as may be reasonably required or appropriate to carry out the purposes of this Agreement.

11. Counterparts and Exhibits. This Agreement may be executed in counterparts, each of which is deemed an original and all of which together constitute one document. All exhibits attached to and referenced in this Agreement are incorporated into this Agreement.

12. Time of Essence. Time and strict and punctual performance are of the essence with respect to each provision of this Agreement.

13. Attorney’s Fees. The prevailing party(ies) in any litigation, arbitration, mediation, bankruptcy, insolvency or other proceeding (“Proceeding”) relating to the enforcement or interpretation of this Agreement may recover from the unsuccessful party(ies) all costs, expenses, and actual attorney’s fees (including expert witness and other consultants’ fees and costs) relating to or arising out of (a) the Proceeding (whether or not the Proceeding proceeds to judgment), and (b) any post-judgment or post-award proceeding including, without limitation, one to enforce or collect any judgment or award resulting from the Proceeding. All such judgments and awards shall contain a specific provision for the recovery of all such subsequently incurred costs, expenses, and actual attorney’s fees.

14. Modification. This Agreement may be modified only by a contract in writing executed by the party to this Agreement against whom enforcement of the modification is sought.

15. Headings. The paragraph headings in this Agreement: (a) are included only for convenience, (b) do not in any manner modify or limit any of the provisions of this Agreement, and (c) may not be used in the interpretation of this Agreement.

16. Prior Understandings. This Agreement and all documents specifically referred to and executed in connection with this Agreement: (a) contain the entire and final agreement of the parties to this Agreement with respect to the subject matter of this Agreement, and (b) supersede all negotiations, stipulations, understandings, agreements, representations and warranties, if any, with respect to such subject matter, which precede or accompany the execution of this Agreement.

17. Interpretation. Whenever the context so requires in this Agreement, all words used in the singular may include the plural (and vice versa) and the word “person” includes a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate or any other entity. The terms “includes” and “including” do not imply any limitation. For purposes of this Agreement, the term “day” means any calendar day and the term “business day” means any calendar day other than a Saturday, Sunday or any other day designated as a holiday under California Government Code Sections 6700-6701. Any act permitted or required to be performed under this Agreement upon a particular day which is not a business day may be performed on the next business day with the same effect as if it had been performed upon the day appointed. No remedy or election under this Agreement is exclusive, but rather, to the extent permitted by applicable law, each such remedy and election is cumulative with all other remedies at law or in equity.

18. Partial Invalidity. Each provision of this Agreement is valid and enforceable to the fullest extent permitted by law. If any provision of this Agreement (or the application of such provision to any person or circumstance) is or becomes invalid or unenforceable, the remainder of this Agreement, and the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, are not affected by such invalidity or unenforceability.

19. Successors-in-Interest and Assigns. Debtor may not voluntarily or by operation of law assign, hypothecate, delegate or otherwise transfer or encumber all or any part of its rights, duties or other interests in this Agreement without the prior written consent of each Secured Party, which consent may be withheld in each Secured Party’s sole and absolute discretion. Any such transfer in violation of this paragraph is void. Subject to the foregoing and any other restrictions on transferability contained in this Agreement, this Agreement is binding upon and inures to the benefit of the successors-in-interest and assigns of each party to this Agreement

20. Notices. All notices or other communications required or permitted to be given to a party to this Agreement shall be in writing and shall be personally delivered, sent by certified mail, postage prepaid, return receipt requested, or sent by an overnight express courier service that provides written confirmation of delivery, to such party at the following respective address:

Spescom UK and Spescom SA

P.O. Box 288

Halfway House 1685 Midrand

South Africa

Attention: Hilton Isaacman

with a copy to: Solomon, Ward, Seidenwurm & Smith, LLP

401 B Street, Suite 1200

San Diego, CA 92101

Attention: Norman L. Smith

Spescom Software, Inc.

9339 Carroll Park Drive

San Diego, CA 92121

Attention: John Low

Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that if it is sent by mail in accordance with this paragraph, then it shall be deemed given, delivered and received three days after the date such notice or other communication is deposited with the United States Postal Service in accordance with this paragraph. Any party to this Agreement may give a notice of a change of its address to the other party(ies) to this Agreement.

exercise of any of its rights or remedies constitutes a waiver of (or otherwise impairs) such right or remedy. A consent to or approval of an act does not waive or render unnecessary the consent to or approval of any other or subsequent act.

22. Drafting Ambiguities. Each party to this Agreement has reviewed and revised this Agreement and has had the opportunity to have such party’s legal counsel review and revise this Agreement. Each party to this Agreement acknowledges that this Agreement has been prepared by Solomon Ward Seidenwurm & Smith, LLP (“SWSS”) which represents only Spescom SA, that Debtor and Spescom UK are not being represented by SWSS in relation to this Agreement and that Debtor and Spescom UK have been advised to retain their own legal counsel. The rule of construction that ambiguities are to be resolved against the drafting party or in favor of the party receiving a particular benefit under an agreement may not be employed in the interpretation of this Agreement or any amendment to this Agreement.

23. Third Party Beneficiaries. Nothing in this Agreement is intended to confer any rights or remedies on any person or entity other than the parties to this Agreement and their respective successors-in-interest and permitted assignees, unless such rights are expressly granted in this Agreement to another person specifically identified as a “Third Party Beneficiary.”

24. ARBITRATION OF DISPUTES. WITHOUT LIMITING IN ANY WAY THE SECURED PARTIES’ RIGHT TO ENFORCE ANY REMEDY AVAILABLE UNDER THE UCC WITHOUT FORMAL LEGAL OR JUDICIAL ACTION, ANY CONTROVERSY OR CLAIM RELATING TO THIS AGREEMENT SHALL BE SETTLED BY ARBITRATION IN SAN DIEGO, CALIFORNIA, IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION, AND JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE ARBITRATOR(S) SHALL NOT HAVE THE AUTHORITY TO AWARD PUNITIVE DAMAGES AGAINST ANY PARTY(IES) TO THIS AGREEMENT. NO PROVISION OF THIS PARAGRAPH SHALL LIMIT THE RIGHT OF ANY PARTY TO EXERCISE SELF–HELP REMEDIES SUCH AS FORECLOSURE AGAINST OR SALE OF ANY REAL OR PERSONAL PROPERTY

COLLATERAL OR SECURITY, OR TO OBTAIN PROVISIONAL OR ANCILLARY REMEDIES FROM A COURT OF COMPETENT JURISDICTION BEFORE, AFTER, OR DURING THE PENDENCY OF ANY ARBITRATION OR OTHER PROCEEDING. THE EXERCISE OF A REMEDY SHALL NOT WAIVE THE RIGHT OF EITHER PARTY TO RESORT TO ARBITRATION.

NOTICE: YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

DEBTOR:	ALTRIS SOFTWARE, INC
	a California corporation

	By:			/s/John W. Low
	John W. Low
	Chief Financial Officer

SECURED PARTIES:

	SPESCOM LIMITED.,
	a South African corporation

	By:		/s/Hilton Isaacman
	Hilton Isaacman
	Director Corporate Finance


	SPESCOM LIMITED.,
	a United Kingdom corporation

	By:	/s/Hilton Isaacman
	Hilton Isaacman
	Director Corporate Finance

EX-10.31 6 j3872_ex10d31.htm EX-10.31 Promissory Note

Exhibit 10.31

SECURED PROMISSORY NOTE

$400,000.00

SAN DIEGO, CALIFORNIA

March 15, 2002

Altris Software, Inc., a California corporation (“Maker”), promises to pay on demand to Spescom LTD, a United Kingdom corporation, or order (“Holder”), the principal sum of the amounts set forth in the upper left-hand corner of this Secured Promissory Note (this “Note”), plus interest at the rate of ten percent (10.0%) per annum, payable as more fully set forth below:

1. Payments. All unpaid principal and accrued interest under this Note shall be immediately due and payable on demand by Holder.

2. Manner of Payments. All payments by Maker under this Note shall be (a) made in lawful money of the United States of America without set off, deduction or counterclaim of any kind whatsoever, (b) credited first to amounts for late charges, if any, second to amounts for Holder’s costs of enforcing this Note, if any, third to any accrued interest under this Note and finally to the principal balance under this Note, and (c) deemed paid by Maker upon their actual receipt by Holder.

3. Security. This Note is secured by a security interest over all of the assets of Debtor pursuant to a Security Agreement (the “Security Agreement”), including applicable financing statements, and a Pledge Agreement (the “Pledge Agreement”), all of even date herewith.

4. Late Charge. If any amount of interest and/or principal under this Note is not received by Holder within fifteen (15) days after its due date, then, without any requirement for notice to Maker, Maker shall immediately pay to Holder an additional sum of five percent (5%) of such overdue amount as a late charge. Such late charge is fair and reasonable based upon the facts and circumstances existing as of the date of this Note. Acceptance of such late charge by Holder shall not constitute a waiver of Maker’s default with respect to such overdue amount, nor prevent Holder from exercising any of the other rights and remedies available to Holder under this Note, the Security Agreement or the Pledge Agreement.

5. Default Interest. If any payment under this Note is not received by Holder within fifteen (15) days after its due date, then, without any requirement for notice to Maker, the rate of interest on such overdue amount shall increase to the lesser of fourteen percent (14%) or the maximum legally permissible rate, whichever is the lesser, until such late payment is made. Such default interest represents a fair and reasonable estimate of the costs that Holder will incur by reason of any late payment by Maker. Acceptance of such default interest by Holder shall not constitute a waiver of Maker’s default with respect to such overdue amount, nor prevent Holder from exercising any of the other rights and remedies available to Holder under this Note, the Security Agreement or the Pledge Agreement.

6. Prepayment. This Note may be prepaid in whole or in part at any time, provided that amounts prepaid shall be credited first to amounts for late charges, if any, second to amounts for Holder’s costs of enforcing this Note, if any, third to any accrued interest under this Note and finally to the principal balance under this Note.

7. Note Waivers. Maker waives presentment, demand, protest, notice of demand and dishonor.

8. Governing Law. This Note is governed by and construed in accordance with the laws of the State of California, irrespective of California’s choice-of-law principles.

9. Further Assurances. Each party to this Note shall execute and deliver all instruments and documents and take all actions as may be reasonably required or appropriate to carry out the purposes of this Note.

10. Venue and Jurisdiction. All actions and proceedings arising in connection with this Note must be tried and litigated exclusively in the State and Federal courts located in San Diego County, California, which courts have personal jurisdiction and venue over each of the parties to this Note for the purpose of adjudicating all matters arising out of or related to this Note. Each party authorizes and accepts service of process sufficient for personal jurisdiction in any action against it as contemplated by this paragraph by registered or certified mail, return receipt requested, postage prepaid, to its address for the giving of notices set forth in this Note.

11. Time of Essence. Time and strict and punctual performance are of the essence with respect to each provision of this Note.

12. Attorneys’ Fees. The prevailing party in any litigation, arbitration, mediation, bankruptcy, insolvency or other proceeding (“Proceeding”) relating to the enforcement or interpretation of this Note may recover from the unsuccessful party all costs, expenses, and actual attorney’s fees (including expert witness and other consultants’ fees and costs) relating to or arising out of (a) the Proceeding (whether or not the Proceeding proceeds to judgment), and (b) any post-judgment or post-award proceeding including, without limitation, one to enforce or collect any judgment or award resulting from the Proceeding. All such judgments and awards shall contain a specific provision for the recovery of all such subsequently incurred costs, expenses, and actual attorney’s fees.

13. Partial Invalidity. Each provision of this Note is valid and enforceable to the fullest extent permitted by law. If any provision of this Note (or the application of such provision to any person or circumstance) is or becomes invalid or unenforceable, the remainder of this Note, and the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, are not affected by such invalidity or unenforceability.

14. Waiver. Any waiver of a default or provision under this Note must be in writing. No such waiver constitutes a waiver of any other default or provision

concerning the same or any other provision of this Note. No delay or omission by a party in the exercise of any of its rights or remedies constitutes a waiver of (or otherwise impairs) such right or remedy. A consent to or approval of an act does not waive or render unnecessary the consent to or approval of any other or subsequent act.

15. Interest Limitation. It is not intended by any provision of this Note to charge interest at a rate in excess of the maximum rate of interest permitted to be charged to Maker under applicable law on a cumulative basis over the life of the loan evidenced by this Note (the “Loan”). If by mistake or error, interest in excess of such maximum rate shall be paid for any period during the term of the Loan, the excess amount shall, if permitted by applicable law, be retained by Holder as additional cash collateral for the Loan to be held without interest or trust and commingled with other assets of Holder or, if not permitted to be so held by Holder, shall be refunded to Maker. If for any period during the term of the Loan, Holder is unable, because of a limitation on the rate of interest permitted to be charged to Maker under applicable law, to collect all of the interest and premium provided for in this Note, such interest or premium (“Interest Shortage”) shall, if permitted by applicable law, be added to the interest earned or to be earned for prior or subsequent periods during the term of the Loan so that, to the extent permitted by applicable law on a cumulative basis over the life of the Loan, Holder may collect all of the interest and premium provided for in this Note, the same to be accomplished in the following manner, or otherwise as permitted by applicable law: (1) if Holder were permitted by applicable law to charge interest to Maker in such prior periods in excess of the amount of interest and premium actually charged during such prior periods, then the interest due on the Loan for such prior periods shall automatically be increased by the amount of such Interest Shortage, but not in excess of the maximum interest permitted to be charged to Maker during such prior periods, and such increased interest for such prior periods shall be immediately due and payable upon demand; and (2) if Holder shall have collected all interest permitted by applicable law to be charged to Maker in such prior periods, and if Holder is thereafter permitted by applicable law to charge interest to Maker in such subsequent periods in excess of the amount of interest and premium actually charged during such subsequent periods, the interest due on the Loan for such subsequent periods shall automatically be increased by the amount of such Interest Shortage, but not in excess of the maximum interest permitted to be charged to Maker during such subsequent period, and such increased interest for such subsequent periods shall be due and payable at the end of each such subsequent period upon demand.

16. Notices. All notices or other communications required or permitted to be given to a party to this Agreement shall be in writing and shall be personally delivered, sent by certified mail, postage prepaid, return receipt requested, or sent by an overnight express courier service that provides written confirmation of delivery, to such party at the following respective address:

Holder:	Spescom LTD
	P.O. Box 288
	Halfway House 1685 Midrand
	South Africa
	Attention: Hilton Isaacman

with a copy to:	Solomon, Ward, Seidenwurm & Smith, LLP
	401 B Street, Suite 1200
	San Diego, CA 92101
	Attention: Norman L. Smith


Maker:	Altris Software, Inc.
	9339 Carroll Park Drive
	San Diego, CA 92121
	Attention: John Low

Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that if it is sent by mail in accordance with this paragraph, then it shall be deemed given, delivered and received three days after the date such notice or other communication is deposited with the United States Postal Service in accordance with this paragraph. Any party to this Note may give a notice of a change of its address to the other party to this Note.

17. Drafting Ambiguities. Each party to this Note has reviewed and revised this Note. Each party to this Note has had the opportunity to have such party’s legal counsel review and revise this Note. Altris acknowledges that this Note has been prepared by Solomon Ward Seidenwurm & Smith, LLP (“SWSS”) which represents only Spescom Ltd., a United Kingdom corporation, with respect to this Note and all related matters, that it is not being represented by SWSS in relation to this Note and related matters and that it has been advised to retain its own legal counsel. The rule of construction that ambiguities are to be resolved against the drafting party or in favor of the party receiving a particular benefit under an agreement may not be employed in the interpretation of this Note or of any amendments to this Note.

ALTRIS SOFTWARE, INC.
a California corporation

By:	/s/John W. Low
		John W. Low
		Chief Financial Officer

EX-10.32 7 j3872_ex10d32.htm EX-10.32 Security Agreement

Exhibit 10.32

SECURITY AGREEMENT

This Security Agreement (“Agreement”) is executed as of March 15, 2002 between Altris Software, Inc., a California corporation (“Debtor”) and Spescom Ltd., a United Kingdom corporation (the “Secured Party”), who agree as follows:

1. Definitions. For purposes of this Agreement, the following definitions shall apply:

1.1. ”Accounts” shall mean all “accounts” as defined in the UCC now owned or hereafter acquired by Debtor, including without limitation (a) all accounts receivable, contract rights, notes, drafts and other obligations or indebtedness owing to Debtor and arising from whatever source; (b) all present and future monies, securities, credit balances, deposits, deposit accounts and other property of Debtor now or hereafter held or received by or in transit to the Secured Party or their affiliates or at any other depository or other institution from or for the account of Debtor, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lien holder or secured party, (iii) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including returned, repossessed and reclaimed goods, and (iv) deposits by and property of account debtors or other Persons securing the obligations of account debtors; (c) all of the rights of Debtor in, to and under all purchase orders for goods, services or other property; (d) all monies due to or to become due to Debtor under all contracts for the sale, lease or exchange of goods or other property and/or the performance of services by it (whether or not yet earned by performance on the part of Debtor) and (e) all of the rights of Debtor to any goods, services or other property represented by any of the foregoing, in each case whether now in existence or hereafter arising or acquired including, without limitation, the right to receive the proceeds of said purchase orders and contracts and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing.

1.2. “Collateral” has the meaning set forth in the Paragraph in this Agreement titled “Security Interests”

1.3. “Default” shall mean any Event of Default and any event which with the passing of time or the giving of notice would, unless cured or waived, constitute an Event of Default.

1.4. “Documents” shall mean all “documents” as defined in the UCC or other receipts covering, evidencing or representing goods, now owned or hereafter acquired by Debtor.

deemed affixed to real property, and all rights under or arising out of present or future contracts relating to the acquisition or use of the above.

1.6. “Event of Default” shall mean any default by Debtor in the full and punctual performance of its obligations under this Agreement or the Loan.

1.7. “General Intangibles” shall mean all “general intangibles” as defined in the UCC now owned or hereafter acquired by Debtor, including without limitation (a) all obligations or indebtedness owing to Debtor (other than Accounts) from whatever source arising, (b) all registered and unregistered (i) patent licenses, (ii) patents, (iii) trademark licenses, (iv) trademarks, (v) rights in intellectual property, (vi) trade names, (vii) service marks, (viii) trade secrets, (ix) copyrights, (x) permits, (xi) licenses, and (xii) applications for the foregoing, (c) goodwill, processes, drawings, blueprints and customer lists, (d) all rights or claims in respect of refunds for taxes paid, (e) all rights in respect of any pension plan or similar arrangement maintained for employees of Debtor or any of its Subsidiaries, and (f) the Subsidiary Interests.

1.8. “Instruments” shall mean (a) all “instruments”, “chattel paper” or “letters of credit”, each as defined in the UCC, evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including without limitation promissory notes, drafts, bills of exchange and trade acceptances, and (b) notes or other obligations or indebtedness owing to a Debtor (including without limitation obligations of Debtor to any other Debtor) from whatever source arising, in each case now owned or hereafter acquired by Debtor.

1.9. “Inventory” shall mean all “inventory” as defined in the UCC, now owned or hereafter acquired by Debtor, wherever located, including without limitation all raw materials and other materials and supplies, work–in–process and finished goods and any products made or processed therefrom and all substances, if any, commingled therewith or added thereto.

1.10. “Lien” shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, including the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement.

1.11. “Loan” shall mean collectively, all loans made by the Secured Party to the Debtor on even date herewith or subsequent hereto.

1.12. “Note” shall mean, collectively, all promissory notes executed by Debtor in favor of the Secured Party on even date herewith or subsequent hereto.

payments with respect to any Collateral, in each case whether now existing or hereafter arising.

1.14. “Security Interests” shall mean the security interests securing the Secured Obligations, including without limitation the Security Interests granted pursuant to this Agreement.

1.15. “Secured Obligations” shall mean the Note and all obligations, liabilities and indebtedness pursuant to the Loan, including, without limitation, principal, interest, charges, fees, costs and expenses, however evidenced, whenever arising (including without limitation arising after the commencement of any case with respect to Debtor under the United States Bankruptcy Code or any similar statute and including the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case).

1.16. “Site” shall mean the Debtor’s principal place of business located at the address set forth in the Paragraph in this Agreement titled “Notices”.

1.17. “Subsidiary” shall mean, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Person performing similar functions are at the time directly or indirectly owned by such Person.

1.18. ”Subsidiary Interests” shall mean any and all of Debtor’s interest in any Person, as a member, partner, shareholder or otherwise.

1.19. “UCC” shall mean the Uniform Commercial Code as in effect on the date hereof in the State of California; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non–perfection of the Security Interest in any item or portion of the Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of California, then “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non–perfection.

2. Representations and Warranties. Except as set forth in writing to the Secured Party on even date herewith, Debtor represents and warrants to the Secured Party as follows (which shall survive the execution and delivery of this Agreement):

2.1. Debtor has good and marketable title to all of the Collateral owned by it, free and clear of any Liens other than the Security Interests.

2.2. Debtor has not performed any acts which might prevent the Secured Party from enforcing any of the terms and conditions of this Agreement or which would limit the Secured Party in any such enforcement. Other than financing statements or other similar or equivalent documents or instrument with respect to the Security Interests, as of the date hereof and thereafter no financing statement, mortgage, security agreement or other similar or equivalent document or instrument covering all or any part of the Collateral is or will be on file or of record in any government office in any jurisdiction in which such filing or recording would be effective to perfect a Lien on such Collateral. No Collateral is in the

possession of any Person or entity whatsoever (other than Debtor) which has taken action to assert any claim thereto or security interest therein, except that the Secured Party or their designee may have possession of Collateral as contemplated hereby.

2.3. The Security Interests constitute valid security interests under the UCC securing the Secured Obligations.

2.4. This Agreement has been duly authorized, executed and delivered by Debtor and constitutes a valid and binding agreement of Debtor. The execution, delivery and performance by Debtor of this Agreement, each filing, statement, supplementary assignment, pledge agreement or other document related to this Agreement to which Debtor is a party do not and will not contravene, or constitute (with or without the giving of notice or lapse of time or both) a default under, any provision of applicable law or regulation or of the charter or by–laws of Debtor or of any agreement, judgment, injunction, order, decree or other instrument binding upon it or result in the creation of any Lien (other than the Security Interests) on any asset of Debtor or any of its Subsidiaries.

2.5. Debtor has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by it. All information in such tax returns, reports and declarations is complete and accurate in all material respects. Debtor has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Debtor and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed.

2.6. There is no present investigation by any governmental agency pending, or to the best of Debtor’s knowledge threatened, against or affecting Debtor, its assets or business and there is no action, suit, proceeding or claim by any Person or entity pending, or to the best of Debtor’s knowledge threatened, against Debtor or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against Debtor would result in any material adverse change in the assets, business or prospects of Debtor or would impair the ability of Debtor to perform its obligations hereunder or under the Note or the Loan or of the Secured Party to enforce any Secured Obligations or realize upon any Collateral.

2.7. Debtor is not in default in any material respect under, or in violation in any material respect of any of the terms of, any agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound and Debtor is in compliance in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders of any foreign, Federal, State or local governmental authority.

investigation made or information possessed by the Secured Party. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Debtor shall now or hereafter give, or cause to be given, to the Secured Party.

3. Security Interests. In order to secure the full and punctual payment and performance of the Secured Obligations in accordance with the terms thereof, Debtor hereby grants to the Secured Party a continuing security interest in and to all of the following property of Debtor, whether now owned or existing or hereafter acquired or arising and regardless of where located (collectively, “Collateral”):

3.1. Accounts;

3.2. Documents;

3.3. Equipment;

3.4. General Intangibles;

3.6. Instruments;

3.7. Inventory;

3.8. Subsidiary Interests;

3.9. All other personal property and assets of Debtor;

3.10. All books and records (including, without limitation, customer lists, supplier lists, credit files, computer programs, printouts and other computer materials and records) of such Debtor pertaining to any of the Collateral; and

3.11. All Proceeds of any of the Collateral described in the preceding clauses of this Paragraph, in any form, including without limitation insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing.

4. Further Assurances; Covenants.

4.1. Debtor shall not change the location of (a) its chief executive office or chief place of business or (b) the locations where it keeps or holds any Collateral, or any records relating to such Collateral, from the Site unless it shall have given the Secured Party at least 45 days’ prior written notice. Debtor shall not in any event change the location of any Collateral if such change would cause the Security Interests in such Collateral to lapse or cease to be perfected.

4.2. Debtor shall maintain Inventory only at (a) the Site, (b) at a location in the United States of which the Secured Party have received at least 45 days’ prior written notice, or (c) in transit to a location specified in the preceding clauses.

4.3. Debtor shall not change its name, identity, any tradename used by it or its corporate structure in any manner unless it shall have given the Secured Party at least 45 days’ prior written notice.

4.4. Debtor shall cause the Secured Party to be named as an insured party and loss payee on each insurance policy covering risks relating to any of its Collateral. Such insurance shall be maintained against such risks as are insured against by companies of established repute in the same or similar lines of business as Debtor, in amounts, under policies, and with insurers reasonably acceptable to the Secured Party. Debtor will deliver to the Secured Party, upon request of the Secured Party, the insurance policies for such insurance. Each such insurance policy shall include effective waivers by the insurer of all claims for insurance premiums against the Secured Party, shall provide that, for so long as any Event of Default shall have occurred and be continuing and the insurer shall have received notice thereof from the Secured Party, all insurance proceeds shall be adjusted with and payable to the Secured Party and shall provide that no cancellation or termination thereof shall be effective until at least 30 days after receipt by the Secured Party of written notice thereof.

4.5. Debtor will, promptly upon request, provide to the Secured Party all information and evidence it may reasonably request concerning the Collateral to enable the Secured Party to enforce the provisions of this Agreement.

4.6. At the request of the Secured Party, Debtor will join with the Secured Party in executing one or more (1) Financing Statements, (2) Copyright Registration Applications, and/or (3) Notices of Assignment of Copyright pursuant to any applicable law, in form satisfactory to the Secured Party.

4.7 Except in the ordinary course of business, the Debtor shall not, without the prior written approval of the Secured Party sell, encumber or otherwise transfer any Collateral, or agree or attempt to do so.

4.8

(a) Debtor shall notify the Secured Party promptly of: (i) any material delay in Debtor’s performance of any of its obligations to any account debtor or the assertion of any claims, offsets, defenses or counterclaims by any account debtor, or any disputes with account debtors, or any settlement, adjustment or compromise thereof, (ii) all material adverse information relating to the financial condition of any account debtor and (iii) any event or circumstance which, to Debtor’s knowledge would cause any then existing Accounts to no longer be collected pursuant to their original terms. No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor without the Secured Party’s consent, except in the ordinary course of Debtor’s business in accordance with practices and policies previously disclosed in writing to Debtor. So long as no Event of Default exists or has occurred and is continuing, Debtor shall settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor. At any time that an Event of Default exists or has occurred and is continuing, the Secured Party shall, at their option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors or grant any credits, discounts or allowances.

(b) The Secured Party shall have the right at any time or times, in the Secured Party’s name or in the name of a nominee of the Secured Party, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise.

(c) The Secured Party may, at any time or times that an Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors that the Accounts have been assigned to the Secured Party and that the Secured Party has a security interest therein and the Secured Party may direct any or all accounts debtors to make payment of Accounts directly to the Secured Party, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Accounts or such other obligations, but without any duty to do so, and the Secured Party shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action the Secured Party may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at the Secured Party’s request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to the Secured Party and are payable directly and only to the Secured Party and Debtor shall deliver to the Secured Party such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as the Secured Party may require.

4.9 With respect to the Equipment:

(a) upon the Secured Party’s request, Debtor shall, at its expense, at any time or times as the Secured Party may request on or after an Event of Default, deliver or cause to be delivered to the Secured Party written reports or appraisals as to the Equipment in form, scope and methodology acceptable to the Secured Party and by an appraiser acceptable to the Secured Party;

(b) Debtor shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted);

(c) Debtor shall use the Equipment with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all material applicable laws;

(d) the Equipment is and shall be used in Debtor’s business and not for personal, family, household or farming use;

(e) the Equipment is now and shall remain personal property and Debtor shall not permit any of the Equipment to be or become a part of or affixed to real property; and

(f) Debtor assumes all responsibility and liability arising from the use of the Equipment unless in the Secured Party’s possession.

4.10 With respect to the Inventory:

(a) upon the Secured Party’s request, Debtor shall, at its expense, no more than once in any twelve (12) month period, but at any time or times as the Secured Party may request on or after an Event of Default, deliver or cause to be delivered to the Secured Party written reports or appraisals as to the Inventory in form, scope and methodology acceptable to the Secured Party and by an appraiser acceptable to the Secured Party, addressed to the Secured Party, upon which the Secured Party are expressly permitted to rely;

(c) Debtor assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; and

(d) Debtor shall keep the Inventory in good and marketable condition.

4.11 Debtor shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Debtor and with respect to which adequate reserves have been set aside on its books. Debtor shall be liable for any tax or penalties (other than income taxes, franchise taxes and any penalties related thereto) imposed on the Secured Party as a result of the financing arrangements provided for herein and Debtor agrees to indemnify and hold the Secured Party harmless with respect to the foregoing, and to repay to the Secured Party on demand the amount thereof, and until paid by Debtor such amount shall be added and deemed part of the Loan. The foregoing indemnity shall survive the payment of the Secured Obligations and the termination or non-renewal of this Agreement.

5. General Authority. Debtor hereby irrevocably appoints the Secured Party as its true and lawful attorney, with full power of substitution, in the name of Debtor, the Secured Party or otherwise, for the sole use and benefit of the Secured Party, but at such Debtor’s expense, to the extent permitted by law to exercise, at any time and from time to time while an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral owned by Debtor: (a) to settle, compromise, compound, prosecute or defend any action or proceeding with respect to the Collateral, (b) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Secured Party were the absolute owner of the Collateral; provided, that the Secured Party shall give Debtor not less than 10 days’ prior written notice of the time and place of any sale or other intended disposition of any of the Collateral, except any Collateral which is perishable or threatens to decline speedily in value or is of a type

customarily sold on a recognized market. Debtor agrees that such notice constitutes “reasonable notification” within the meaning of Section 9-504(3) of the UCC.

6. Remedies Upon Event of Default.

6.1. If any Event of Default has occurred and is continuing, the Secured Party may exercise all other rights of a secured party under the UCC (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Secured Party may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, sell the Collateral or any part thereof at public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Secured Party may deem satisfactory. The Secured Party may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale) and thereafter hold the same, absolutely, free from any right or claim of whatsoever kind. Debtor agrees to execute and deliver such documents and take such other action as the Secured Party deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale, the Secured Party shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold to it absolutely, free from any claim or right of whatsoever kind, including any equity or right of redemption of Debtor which may be waived and Debtor, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice of sale shall, (1) in case of a public sale, state the time and place fixed for such sale, and (2) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Secured Party may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Secured Party may determine. The Secured Party shall not be obligated to make any such sale pursuant to any such notice. The Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Secured Party until the selling price is paid by the purchaser thereof, but the Secured Party shall not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may again be sold upon like notice. The Secured Party, instead of exercising the power of sale herein conferred upon them, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.

6.2. For the purpose of enforcing any and all rights and remedies under this Agreement, if any Event of Default has occurred and is continuing, then the Secured Party may (a) require Debtor to, and Debtor agrees that it will, at its own expense, forthwith assemble all or any part of the Collateral as directed by the Secured Party and make it available at a place designated by the Secured Party which is, in its opinion, reasonably convenient to the Secured Party and Debtor, whether at the premises of Debtor or otherwise, (b) to the extent permitted by applicable law, enter, with or without process of law and

without breach of the peace, any premise where any of the Collateral is or may be located, and without charge or liability to it seize and remove such Collateral from such premises, (c) have access to and use any of Debtor’s books and records relating to the Collateral and (d) prior to the disposition of the Collateral, process, repair or recondition it or otherwise prepare it for disposition in any manner and to the extent the Secured Party deems appropriate and, in connection with such preparation and disposition, use without charge any trademark, trade name, copyright, patent or technical process used by Debtor.

6.3. Any laboratory which has possession of any of the Collateral is hereby constituted and appointed by Debtor as pledgeholder for the Secured Party and the Secured Party may authorize each such pledgeholder to sell all or any portion of the Collateral upon the order and direction of the Secured Party, and Debtor hereby waives any and all claims for damages, or otherwise, for any action taken by such pledgeholder.

7.1. First, to payment of the expenses of such sale or other realization, including, on a pari passu basis, reasonable compensation to agents and counsel for the Secured Party and all expenses, liabilities and advances incurred or made by the Secured Party in connection therewith, and any other unreimbursed expenses for which the Secured Party is to be reimbursed under any other agreement or instrument entered into in connection with the Loan or this Agreement and unpaid fees owing to the Secured Party.

7.2. Next, to the payment of the Secured Obligations, on a pari passu basis, in accordance with the provisions of the Loan, until all such amounts have been paid in full.

7.3. Finally, to Debtor or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds.

The Secured Party may make distributions hereunder in cash or in kind or in any combination thereof.

8. Termination of Security Interest; Release of Collateral. Upon the repayment in full of all Secured Obligations, the Security Interests shall terminate and all rights to the Collateral shall revert to Debtor. At any time and from time to time prior to such termination of the Security Interests, the Secured Party may release any of the Collateral or release Debtor of its obligations hereunder with the prior written consent of the Secured Party.

9. Governing Law. This Agreement is governed by and construed in accordance with the laws of the State of California, irrespective of California’s choice-of-law principles.

12. Time of Essence. Time and strict and punctual performance are of the essence with respect to each provision of this Agreement.

14. Modification. This Agreement may be modified only by a contract in writing executed by the party to this Agreement against whom enforcement of the modification is sought.

17. Interpretation. Whenever the context so requires in this Agreement, all words used in the singular may include the plural (and vice versa) and the word “Person” includes a natural person, a corporation, a firm, a partnership, a joint venture, a trust, an estate or any other entity. The terms “includes” and “including” do not imply any limitation. For purposes of this Agreement, the term “day” means any calendar day and the term “business day” means any calendar day other than a Saturday, Sunday or any other day designated as a holiday under California Government Code Sections 6700-6701. Any act permitted or required to be performed under this Agreement upon a particular day which is not a business day may be performed on the next business day with the same effect as if it had been performed upon the day appointed. No remedy or election under this Agreement is exclusive, but rather, to the extent permitted by applicable law, each such remedy and election is cumulative with all other remedies at law or in equity.

18. Partial Invalidity. Each provision of this Agreement is valid and enforceable to the fullest extent permitted by law. If any provision of this Agreement (or the application of such provision to any Person or circumstance) is or becomes invalid or unenforceable, the remainder of this Agreement, and the application of such provision to Persons or

circumstances other than those as to which it is held invalid or unenforceable, are not affected by such invalidity or unenforceability.

19. Successors-in-Interest and Assigns. Debtor may not voluntarily or by operation of law assign, hypothecate, delegate or otherwise transfer or encumber all or any part of its rights, duties or other interests in this Agreement without the prior written consent of the Secured Party, which consent may be withheld in the Secured Party’s sole and absolute discretion. Any such transfer in violation of this paragraph is void. Subject to the foregoing and any other restrictions on transferability contained in this Agreement, this Agreement is binding upon and inures to the benefit of the successors-in-interest and assigns of each party to this Agreement

Secured Party: Spescom Ltd.

P.O. Box 288

Halfway House 1685 Midrand

South Africa

Attention: Hilton Isaacman

with a copy to: Solomon, Ward, Seidenwurm & Smith, LLP

401 B Street, Suite 1200

San Diego, CA 92101

Attention: Norman L. Smith

Debtor: Altris Software, Inc.

9339 Carroll Park Drive

San Diego, CA 92121

Attention: John Low

21. Waiver. Any waiver of a default or provision under this Agreement must be in writing. No such waiver constitutes a waiver of any other default or provision concerning the same or any other provision of this Agreement. No delay or omission by a party in the exercise of any of its rights or remedies constitutes a waiver of (or otherwise impairs) such right or remedy. A consent to or approval of an act does not waive or render unnecessary the consent to or approval of any other or subsequent act.

22. Drafting Ambiguities. Each party to this Agreement has reviewed and revised this Agreement and has had the opportunity to have such party’s legal counsel review and revise this Agreement. Each party to this Agreement acknowledges that this Agreement has been prepared by Solomon Ward Seidenwurm & Smith, LLP (“SWSS”) which represents only the Secured Party, that Debtor is not being represented by SWSS in relation to this Agreement and that Debtor has been advised to retain its own legal counsel. The rule of construction that ambiguities are to be resolved against the drafting party or in favor of the party receiving a particular benefit under an agreement may not be employed in the interpretation of this Agreement or any amendment to this Agreement.

23. Third Party Beneficiaries. Nothing in this Agreement is intended to confer any rights or remedies on any Person or entity other than the parties to this Agreement and their respective successors-in-interest and permitted assignees, unless such rights are expressly granted in this Agreement to another Person specifically identified as a “Third Party Beneficiary.”

24. ARBITRATION OF DISPUTES. WITHOUT LIMITING IN ANY WAY THE SECURED PARTY’S RIGHT TO ENFORCE ANY REMEDY AVAILABLE UNDER THE UCC WITHOUT FORMAL LEGAL OR JUDICIAL ACTION, ANY CONTROVERSY OR CLAIM RELATING TO THIS AGREEMENT SHALL BE SETTLED BY ARBITRATION IN SAN DIEGO, CALIFORNIA, IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION, AND JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE ARBITRATOR(S) SHALL NOT HAVE THE AUTHORITY TO AWARD PUNITIVE DAMAGES AGAINST ANY PARTY(IES) TO THIS AGREEMENT. NO PROVISION OF THIS PARAGRAPH SHALL LIMIT THE RIGHT OF ANY PARTY TO EXERCISE SELF–HELP REMEDIES SUCH AS FORECLOSURE AGAINST OR SALE OF ANY REAL OR PERSONAL PROPERTY COLLATERAL OR SECURITY, OR TO OBTAIN PROVISIONAL OR ANCILLARY REMEDIES FROM A COURT OF COMPETENT JURISDICTION BEFORE, AFTER, OR DURING THE PENDENCY OF ANY ARBITRATION OR OTHER PROCEEDING. THE EXERCISE OF A REMEDY SHALL NOT WAIVE THE RIGHT OF EITHER PARTY TO RESORT TO ARBITRATION.

[Signature Page Follows]

IN WITNESS WHEREOF, Debtor and the Secured Party have each caused this Security Agreement to be executed by its duly authorized representative as of the day and year first written above.

DEBTOR:	ALTRIS SOFTWARE, INC.
	a California corporation

	By:	/s/John W. Low
			John W. Low
			Chief Financial Officer

SECURED PARTY:	SPESCOM LTD.,
	a United Kingdom corporation

	By:	/s/Hilton Isaacman
			Hilton Isaacman
			Director Corporate Finance

SIGNATURE PAGE TO SECURITY AGREEMENT

EX-10.33 8 j3872_ex10d33.htm EX-10.33 Fax to E. Burns

Exhibit 10.33

PLEDGE AGREEMENT

This Pledge Agreement (the “Pledge Agreement”) is executed as of March 152002 by and between Altris Software, Inc., a California corporation (“Pledgor”), Spescom Ltd., an United Kingdom corporation (“Secured Party”) and Solomon Ward Seidenwurm & Smith, LLP (“Pledgeholder”) as follows:

1. Recitals

1.1 Concurrently herewith Pledgor has executed and delivered a Secured Promissory Note (the “Note”) to Secured Party in the principal amount of Four Hundred Thousand Dollars ($400,000).

1.2 In order to provide security for Pledgor’s payment obligations under the Note, Pledgor has agreed to pledge all of its interest in Altris International Limited, an United Kingdom corporation and Spescom Software Limited, an United Kingdom corporation (the “Shares”) to Secured Party.

1.3 Concurrently herewith, in order to provide security for Pledgor’s payment obligations under the Note, Pledgor has granted a security interest in all of its assets to Secured Party pursuant to a Security Agreement (the “Security Agreement”).

2. Grant of Security Interest. To secure Pledgor’s obligations to Secured Party under the Note (“Obligations”), Pledgor pledges, assigns and grants to Secured Party a security interest in (a) the Shares; and (b) all stock or cash dividends, substitutions, and shares issued pursuant to any merger or reorganization, or any other proceeds of such Shares as defined in Section 9306 of the California Uniform Commercial Code.

3. Delivery of Shares. Upon Pledgor’s execution of this Pledge Agreement, Pledgor shall concurrently validly endorse the Shares in blank and deliver the Shares to Pledgeholder and by execution hereof agrees that the Shares shall concurrently be held in pledge by Pledgeholder hereunder to secure the Obligations.

4. Terms of Pledge. The Shares shall be held by Secured Party in pledge subject to the terms and conditions of this Pledge Agreement. As long as no default exists as described in Paragraph 7 below, Pledgor shall have the right at all times to vote such Shares on any and all matters.

5. Negative Covenants. Until all obligations secured by this Pledge Agreement shall have been fully and finally performed, Pledgor shall not without the prior written consent of Secured Party: (a) create or suffer to exist any further security interest in the Shares; or (b) sell or otherwise dispose of the Shares. Secured Party shall retain the Shares to secure Pledgor’s obligations to Secured Party under this Pledge Agreement.

6. Events of Default. There shall be a default under this Agreement if Pledgor causes or suffers an Event of Default under the Note or the Security Agreement.

7. Rights of Secured Party Upon Default. In the event of an uncured default of an Obligation, Secured Party shall have the rights of a secured party under the California Uniform Commercial Code except for the right to seek a deficiency following sale or other disposition of the Shares, it being understood that Secured Party’s sole and only recourse shall be to the Shares. In the foregoing event, Secured Party shall be entitled to the delivery of the Shares endorsed to Secured Party and the Shares shall be transferred to Secured Party on the books of the Company.

8. Duties of Pledgeholder.

8.1 Unless a default has occurred which remains uncured, Pledgeholder’s sole duty shall be to hold the Shares until such time as the Obligation has been paid in full. Pledgeholder shall not act unilaterally in discharging his duties hereunder. The Pledgeholder is directed to deliver Shares to Pledgor at such time as the Obligation has been paid in full or otherwise satisfied or released. At that time, Pledgeholder shall return the Shares and the certificate representing the Shares to Pledgor, and all Shares shall be deemed released from this pledge.

8.2 In the event Secured Party determines that an uncured or incurable default has occurred, Secured Party shall deliver written notice to Pledgor (“Notice of Default”). The Notice of Default shall set forth the facts underlying the alleged default with particularity. Pledgeholder may deliver the Shares following such Notice of Default if he has not received a notice disputing the default (“Notice Of Protest”) within thirty (30) days following the date that Pledgeholder received the Notice of Default. In performing its obligations hereunder including any performance hereunder in the event of a dispute, the Pledgeholder shall be compensated by for its time at its standard billable rates then in effect and shall be reimbursed for any costs of performance hereunder.

9. Representations and Warranties of Secured Party. Secured Party represents and warrants to Pledgor that except for the security interest created by this Pledge Agreement, no person or entity has any right, title, interest, or claim in or to the Shares or any part of the Shares.

10. Governing Law. This Pledge Agreement is governed by and construed in accordance with the laws of the State of California, irrespective of California’s choice–of–law principles. For purposes of venue and jurisdiction, this Pledge Agreement shall be deemed made and to be performed in the City of San Diego, California.

11. Further Assurances. Each party to this Pledge Agreement shall execute and deliver all instruments and documents and take all actions as may be reasonably required or appropriate to carry out the purposes of this Pledge Agreement.

12. Counterparts and Exhibits. This Pledge Agreement may be executed in counterparts, each of which is deemed an original and all of which together constitute one document. All exhibits attached to and referenced in this Pledge Agreement are incorporated into this Pledge Agreement.

13. Modification. This Pledge Agreement may be modified only by a contract in writing executed by the party to this Pledge Agreement against whom enforcement of the modification is sought.

14. Headings. The paragraph headings in this Pledge Agreement: (a) are included only for convenience, (b) do not in any manner modify or limit any of the provisions of this Pledge Agreement, and (c) may not be used in the interpretation of this Pledge Agreement.

15. Prior Understandings. This Pledge Agreement and all documents specifically referred to and executed in connection with this Pledge Agreement: (a) contain the entire and final agreement of the parties to this Pledge Agreement with respect to the subject matter of this Pledge Agreement, and (b) supersede all negotiations, stipulations, understandings, agreements, representations and warranties, if any, with respect to such subject matter, which precede or accompany the execution of this Pledge Agreement.

16. Interpretation. Wherever the context of this Pledge Agreement requires, all words used in the singular shall be construed to have been used in the plural, and vice versa, and the use of any gender specific pronoun shall include any other appropriate gender. The conjunctive “or” shall mean “and/or” unless otherwise required by the context in which the conjunctive “or” is

used. Pledgor and Secured Party have each had the opportunity to be represented by legal counsel and hereby waives any benefit under any rule of law or legal decision that would require interpretation of any ambiguities in this Pledge Agreement against the party drafting it. The provisions of this Pledge Agreement shall be interpreted in a reasonable manner to effect the purposes of the parties and this Pledge Agreement.

17. Representation. This Agreement has been prepared by Solomon Ward Seidenwurm & Smith, LLP (“SWSS”), as counsel for Secured Party. By this provision, SWSS affirms that it represents no other party in this transaction and suggests the advisability of all other parties obtaining the advice and representation of independent counsel.

18. Partial Invalidity. Each provision of this Pledge Agreement is valid and enforceable to the fullest extent permitted by law. If any provision of this Pledge Agreement (or the application of such provision to any person or circumstance) is or becomes invalid or unenforceable, the remainder of this Pledge Agreement, and the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, are not affected by such invalidity or unenforceability.

19. Notices. Each notice and other communication required or permitted to be given under this Pledge Agreement (“Notice”) must be in writing. Notice is duly given to another party upon: (a) hand delivery to the other party, (b) receipt by the other party when sent by facsimile to the address and number for such party set forth below (provided, however, that the Notice is not effective unless a duplicate copy of the facsimile Notice is promptly given by one of the other methods permitted under this paragraph), (c) three business days after the Notice has been deposited with the United States postal service as first class certified mail, return receipt requested, postage prepaid, and addressed to the party as set forth below, or (d) the next business day after the Notice has been deposited with a reputable overnight delivery service, postage prepaid, addressed to the party as set forth below with next–business–day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery–service–provider.

To Debtor: Altris Software, Inc.

9339 Carroll Park Drive

San Diego, CA 92121

Attention: John Low

858-452-0498 (Telecopy)

To Secured Party:

Spescom Limited

P.O. Box 288

Halfway House 1685 Midrand

South Africa

Attention: Hilton Isaacman

011-27-11-266-1707 (Telecopy)

Copy to: Solomon Ward Seidenwurm & Smith, LLP

401 B Street, Suite 1200

San Diego, CA 92101

Attn: Norman L. Smith, Esq.

619-231-4755 (Telecopy)

To Pledgeholder:

Solomon Ward Seidenwurm & Smith, LLP

401 B Street, Suite 1200

San Diego, CA 92101

Attn: Norman L. Smith, Esq.

619-231-4755 (Telecopy)

Each party shall make a reasonable, good faith effort to ensure that it will accept or receive Notices to it that are given in accordance with this paragraph. A party may change its address for purposes of this paragraph by giving the other party written notice of a new address in the manner set forth above.

20. Waiver. Any waiver of a default or provision under this Pledge Agreement must be in writing. No such waiver constitutes a waiver of any other default or provision concerning the same or any other provision of this Pledge Agreement. No delay or omission by a party in the exercise of any of its rights or remedies constitutes a waiver of (or otherwise impairs) such right or remedy. A consent to or approval of an act does not waive or render unnecessary the consent to or approval of any other or subsequent act.

PLEDGOR:	ALTRIS SOFTWARE, INC.,
	a California corporation

	By:	/s/John W. Low
						John W. Low
						Chief Financial Officer

SECURED PARTY:	SPECOM LTD,
	an United Kingdom corporation

	By:			/s/Hilton Isaacman
						Hilton Isaacman
						Director Corporate Finance

PLEDGEHOLDER:	SOLOMON WARD SEIDENWURM & SMITH, LLP

	By:		/s/ Norman L. Smith, Esq
	.				Norman L. Smith, Esq

1.18. ”Subsidiary Interests” shall mean any and all of Debtor’s interest in any Person, as a member, partner, shareholder or otherwise.

3.11. All Proceeds of any of the Collateral described in the preceding clauses of this Paragraph, in any form, including without limitation insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing.

4.6. At the request of the Secured Party, Debtor will join with the Secured Party in executing one or more (1) Financing Statements, (2) Copyright Registration Applications, and/or (3) Notices of Assignment of Copyright pursuant to any applicable law, in form satisfactory to the Secured Party.

(b) Debtor shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted);

(c) Debtor shall use the Equipment with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all material applicable laws;

(d) the Equipment is and shall be used in Debtor’s business and not for personal, family, household or farming use;

(e) the Equipment is now and shall remain personal property and Debtor shall not permit any of the Equipment to be or become a part of or affixed to real property; and

(f) Debtor assumes all responsibility and liability arising from the use of the Equipment unless in the Secured Party’s possession.

6. Remedies Upon Event of Default.

John W. Low

Hilton Isaacman